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Home Loan: Is It Overshadowing Our Other Commitments And Plans?
Posted by Pradeep Sadanapalli | June 10, 2007 | 143 views
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Loading ...Home loan is not the only long term expenditure. Keep liquidity for your other needs too, says SRIKALA BHASHYAM.
When you think of investing in a property, the next thing on your mind is to think of a home loan to fund the same. That in turn is sure to prepare you for a long innings. Immediately the calculator is out and borrowers are worried about the EMIs they are likely to cough up in the next 10-15 years. Invariably, borrowers are happy as long as their salary can take care of the home loan repayment. Little do they pay attention to other commitments which could arise during home loan repayment. Is home loan the only long term commitment in your life?
The answer is a definite no. As you are aware, home loan, no doubt is a long term commitment requiring cash flow for 10-20 years. However, borrowers should also keep in mind the fact that they need to prepare for other long term expenses such as children’s education or marriage, retirement planning, etc. Often, individuals tend to ignore other long term needs while investing in a property. As a result, a major chunk of the monthly income is set aside for home loan repayment leaving very little for liquidity. Then how should you tackle the problem?
Before you sign up for a home loan, keep in mind the fact that the EMI fixed at the time of borrowing, may not remain the same till the loan is repaid. Whether it is floating or fixed option, your EMI is bound to look different by the time loan is completely repaid. As you are aware, under floating rate option, the probability is much higher. Even under fixed rate option, the EMI may not remain the same.
Many borrowers think that under fixed rate loan option, interest rate remains the same as long as the loan is repaid. However, fixed rate too is linked to the prime lending rate of benchmark rate of the lender and this is generally reviewed once in 3 years.
As a result, when you sign up for a home loan with tenure of 15-20 years, you should also be prepared for a higher EMI. When interests are on the rise, the rise in EMIs could mean an additional burden of a few thousand rupees.
Besides focusing on home loans, borrowers should also make it a point to set aside money for other long term expenses such as children’s education or retirement planning. In the case of retirement planning, it is always advisable to start early, as it would give you more number of years to build corpus. Another long term commitment for those with children would be educational expenditure. With educational cost increasing at a faster rate than inflation, one can not rely only on savings account for building the corpus. Between education and retirement planning, saving for education should get a higher allocation as the expenditure is likely to arise much earlier. In most instances, it tends to be a recurring expenditure after some time.
As said earlier, besides your home loan, set aside a portion of your savings for both these long term expenses. One of the options is by opting for a longer tenure so that your monthly EMI comes down.
On the other hand, you can also look at the option of higher margin money so that your monthly EMI is kept to the minimum. More importantly, protect your loan liability with an insurance cover so that the family is not burdened with huge liability in the event of death.
SOURCES:
The Hindu
Topics: Reports, Real Estate |
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