Homebuyers should Avoid Falling into the Debt Trap
Feb 27, 2020 Home Trading Steps
With the financial institutes and banks lending home loans, most homebuyers are able to purchase a house at the age of 20s and 30 as compared to our previous generation who saved for a house for their entire lives and built a house near their retirement. Apart from the banks financing the purchase other benefits include tax benefits on both principal and interest component.
The interest component of the home loan is lower compared to the other loans. To enjoy the various benefits, borrowers must follow certain rules to make sure they don’t fall into the debt trap in future.
Short tenure loans aren’t the best
There’s no hiding that home loans are the debt that you carry with you for a very long time until the entire loan amount is paid. Some people chose shorter loan tenure to get rid of the financial burden as soon as possible. However, most people forget that paying EMI means you have to make some cuts in your lifestyle and daily expenses. Banks advise that your monthly EMI should no increase more than 40 percent of your monthly income leaving some space for another loan if you want.
Trying to repay your loan amount will reduce your savings that might come handy in case of a rainy day. Taking a home loan at the 20s or 30s, when your responsibilities are only going to increase, taking a home loan with shorter tenure is not a wise decision. It may drive the borrower to take another loan to fulfil their needs trapping them in the circle of loans and debts.
Borrow what you can repay
When it comes to taking the home loan, the banks are ready to finance 80% of the total cost leaving 20 percent to be paid by the buyer himself. Even though it is a good facility provided by the banks and financial institutes, it is not wise when it comes to repaying the home loan. The higher your loan amount, the higher will be your monthly EMI and the interest paid. It is a good practice to pay for the home as much as one can without taking a huge amount of loan. Even if the loan tenure does not bother you, being under debt for a long time can stress your finances and savings. It is a good idea to ask for a loan from friends and family as there will be no interest involved and one can return the loan without stressing on their financials.
The interest component of the home loan is lower compared to the other loans. To enjoy the various benefits, borrowers must follow certain rules to make sure they don’t fall into the debt trap in future.
Short tenure loans aren’t the best
There’s no hiding that home loans are the debt that you carry with you for a very long time until the entire loan amount is paid. Some people chose shorter loan tenure to get rid of the financial burden as soon as possible. However, most people forget that paying EMI means you have to make some cuts in your lifestyle and daily expenses. Banks advise that your monthly EMI should no increase more than 40 percent of your monthly income leaving some space for another loan if you want.
Trying to repay your loan amount will reduce your savings that might come handy in case of a rainy day. Taking a home loan at the 20s or 30s, when your responsibilities are only going to increase, taking a home loan with shorter tenure is not a wise decision. It may drive the borrower to take another loan to fulfil their needs trapping them in the circle of loans and debts.
Borrow what you can repay
When it comes to taking the home loan, the banks are ready to finance 80% of the total cost leaving 20 percent to be paid by the buyer himself. Even though it is a good facility provided by the banks and financial institutes, it is not wise when it comes to repaying the home loan. The higher your loan amount, the higher will be your monthly EMI and the interest paid. It is a good practice to pay for the home as much as one can without taking a huge amount of loan. Even if the loan tenure does not bother you, being under debt for a long time can stress your finances and savings. It is a good idea to ask for a loan from friends and family as there will be no interest involved and one can return the loan without stressing on their financials.
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