Getting a home loan at a young age only allows you to wrap it up way before and concentrate on other important things. Imagine yourself finishing the loan when you’re 40 by taking a loan at 20-25. How mentally relaxed will you be? You can save more for your retirement where your regular income would most likely stop. But many don’t earn as much as required to take a home loan when they are in their early 20s. That said, delaying home acquisition till your late 30s or early 40s could only make it tough for you.
The gap between your age at that time and your retirement would narrow significantly, raising questions over your home loan eligibility. The EMI might be too much for you to pay. For instance, if you take a home loan of INR 60 lakh by the time you’re 42, you’ll get a maximum of 18 years to repay it. The EMI would then amount to INR 52,498. In case the income by that time remains INR 80,000 only, the bank could either reduce the loan amount or reject your application.
The lender also wants to ensure you’ve sufficient left after paying the EMI. Usually, lenders want your EMI to not exceed 30-60% of your net monthly income. The actual percentage might differ based on the earnings of an individual. So, taking a home loan at the right time is paramount. Let’s check below how you can ensure the same.
Strategies for Taking a Home Loan at the Right Time
This will require saving from the time you start earning even if it’s not much. But doing so with a plan will yield you more dividends. You must have an idea about the property you wish to buy. Check its price and raise it by some 5-6% every year. For example, if the property you wish to buy stands at INR 30 lakh now, it will grow to INR 40-45 lakh in the next four-five years. The price assessment is made keeping in mind the real estate reports where the yearly price hike of 4-5% is anticipated. By starting at the earliest, the possibility of having the required savings for successful EMI payment enhances. Raise your yearly savings by 10-15% based on the increase in income. And if your income allows you to save more, don’t hesitate! Extra savings only allow you to stay cool should things not go exactly the way you may plan.
But, What is the Right Time for Taking a Home Loan?
The right time will be when you can pay the required down payment amount, have the income to pay the EMI on time, etc. By knowing the projected property price beforehand, you can plan for these. A down payment amount constitutes around 10-25% of the property price. This is not funded by the lenders. So, if your age is 25, plan a home loan no later than 10 years from now. Although you can pay the loan via EMIs till you retire at 60, giving yourself some debt-free years before retirement isn’t bad! So, if you take a home loan at around the 30-35th year of your life, you can finish it by the time you’re 50-55. It is based on a loan tenure assumption of 20 years. You can get a maximum of 30 years to repay the loan, but that leads to excessive interest payments which you may not appreciate.
Calculate Home Loan Down Payment Sum & EMI
Home loans up to INR 30 lakh, 30-75 lakh and above 75 lakh are given up to 90%, 80% and 75% of the property price, respectively. The below table will give you an idea of the down payment one needs to pay to take a home loan.
|Loan Quantum (In INR)
|Loan Eligibility Based on the Property Price
|Minimum Down Payment Required
|Loan Up to 30 Lakh
|Up to 90% of the Property Price
|10% of the Property Price
|Loan Above 30-75 Lakh
|Up to 80% of the Property Price
|20% of the Property Price
|Above 75 Lakh
|Up to 75% of the Property Price
|25% of the Property Price
Projecting accurately the EMI for a home loan you’re about to take in say 4-5 years may not be easy. But you can always have a rough idea of the EMI amount. The EMI, to a large extent, depends on the interest rate that might prevail at that time.
Take for instance, home loan interest rates have been constantly getting reduced since 2019. In fact, the rates have dropped by about 2.50% across loan amounts. But the key is to know what affects the rate of interest. The cost of funds that lenders bear impact the interest rate. As the RBI had been cutting the repo rate, the rate at which the RBI extends to commercial banks, since 2019, the cost of funds for banks has come down drastically, resulting in rate reductions.
The rationale behind constant rate cuts was inflation remaining below the RBI’s comfort range of 6% and the central bank’s continued efforts to ramp up economic growth. But as inflation has risen due to increased liquidity, the rate may not reduce in the near term.
So, on a 20- year home loan of INR 45 lakh, the EMI would amount to INR 36,804 at an assumed interest rate of 7.70%. The interest rate here is based on the current scenario. Suppose you plan to take a home loan five years later, the EMI amount can jump to INR 40,000 should the rate go up. So, you need to save like that.