How to Avoid Falling Into a Debt Trap when Taking a Home Loan
Sep 18, 2019 Home Loan
Buying a home is a dream come true for most of us. And when the banks and the financial institutes are ready to give us the home loan for almost 80% the cost of the property, the dream becomes a reality pretty early in life. Not just the benefit of home loan but also the tax benefits one enjoy when buying the house is one of the reasons why the younger generation are getting into the real estate sector. However, to make sure that the entire process of home buying does not fall through, and one does not end in endless debt, there are specific precautionary measures one has to take.
We discuss what a home buyer must do to avoid falling into a debt trap:
Keep the loan tenure in mind: a home loan means being in debt till the time you have repaid the entire amount to the bank or the lender with interest. Taking the home loan with lesser tenure seems like a good idea, but in the long run, it can turn out to be a bad decision. It is understandable why one would want to get rid of loan debt as soon as possible, but a shorter tenure will mean that you will have to pay a lot of money every month towards paying the debt. This will also reduce your savings and money that you can keep aside for a rainy day.
A longer tenure, say like 20 years, you will be paying a small amount every month towards the EMI without compromising your financial expenditure.
A longer tenure, say like 20 years, you will be paying a small amount every month towards the EMI without compromising your financial expenditure.
Borrow what you can repay:
Though banks are ready to pay 80 percent of the amount for the loan, one should be ready to pay as much they can from their pocket. Taking less amount of loan from the bank means less money the borrower has to pay back to the bank. Your borrowing capacity should match the repaying capacity as well. Taking loans from family and friends will be a good idea as well as one will not have to pay the interest amount to them.
When you take the home loan, certain habits of expenditure needs to be looked at. Keep a check of your expenses and try to cut them down. Your entire monthly EMI should not increase 40 percent of your total income. If in case, you want to take another loan in the future, one should keep in mind the capacity one can repay to the back.
When you take the home loan, certain habits of expenditure needs to be looked at. Keep a check of your expenses and try to cut them down. Your entire monthly EMI should not increase 40 percent of your total income. If in case, you want to take another loan in the future, one should keep in mind the capacity one can repay to the back.
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