Home loan: Buying a house is the biggest dream of most people. For this, a home loan becomes a big support, because usually most people do not have a lump sum capital to buy. Taking a home loan to buy a house is undoubtedly a smart way, but it should be managed carefully. Otherwise, there is a danger of getting caught in the debt trap.
Let us know how you can avoid the debt trap after applying for a home loan.
Understand the difference between the ability to take and repay loans
Banks usually give you a loan by seeing your credit score and income stability. But this does not mean that you apply for a huge amount. How much loan you can take, more than this, it matters how much loan you can easily repay.
The EMI of the loan should remain so that you do not have to compromise on other things. You can fulfill your romantic expenses, pay your EMI after saving money for long -term financial goals and emergency funds. In the true sense, EMI should be a maximum of 35-40 percent of your monthly income. With this, you will be able to save money comfortably for the rest of your needs.
Keep all the expenses related to the house in mind
We often do not pay attention to stamp duty, registration fees, interior expenses, parking etc. while calculating home loans. Due to these, the price of property increases by 10-15 percent.
If you do not pay attention to these, then after the home loan you have to take a personal loan of more married or use a credit card. This will increase the burden on you.
It is necessary to choose the right duration and interest type
It is also necessary to pay attention to how much the home loan period remains and the interest rate is fixed or floating. If you take a loan for a long period, EMI will be less, but you have to pay more interest.
At the same time, if you take a loan for a short period, EMI will be more, but interest will have to be paid, but it can increase the burden of every month. Therefore, take a decision only by coordinating everything. Also pay attention to fixed and floating rates. Floating rates are often better in a country like India. Because it is also likely to reduce the interest rate according to the repo rate, as is happening now.
Keep funds for emergency
While taking a home loan, you should have money equal to at least 6 months expenses. This includes your every month’s bills, household expenses and EMI.
Always remember that emergency can come anytime. Whether it is about medical emergency, or suddenly the job. It may take a few months to deal with this and to normalize economic conditions. In such a situation, if there is no emergency fund, then there will also be a risk of missing EMI of home loan.
How to avoid debt trap after home loan
After taking a home loan, people often take credit cards, personal loans or car loans. The burden of EMI increases and there comes a time when a large part of the salary only goes to repay the debt, this is Debt Trap i.e. a debt trap. To avoid this, you can look at some things.
- While taking a home loan, keep in mind that EMI should not exceed 40% of your monthly income.
- After taking a home loan, the credit card should avoid more expenses, as the payment will be levied heavy interest.
- Personal loans should also be avoided, as it has a higher interest rate.
- If taking a car loan after home loan, try to make more down payment.
- If a bank is offering a home loan at a cheaper rate, then home loan balance transfer options can also be selected.
- If your monthly income comes in addition to additional money, such as tax refunds, returns on investment, annual bonus then use it to repay the home loan.
- This will reduce the burden of interest on you and the duration of the home loan will also decrease.
(This article for Moneycontrol Hindi has been written by Atul Monga, who is the co-founder and CEO of Basic Home Loan)
Also read: Explainer: Home, Car, Gold, Personal … How many types of loans are there, what is the difference between them?