Buying a house if perhaps the biggest financial transaction that a common person does in his/her life. The price of an apartment that can easily run into crores ensures the significance of a real estate transaction in a person’s life.
The most prudent way of buying a house is treating it as a financial commitment that is spread over many years. Interest rates are high now. Therefore, any housing loan will put the burden of a significant EMI on the head of the buyer. Therefore, one has to begin planning from the initial years of one’s income.
Draw up a budget and begin investing
The first task is to draw up a budget. The next step is to invest systematically in a manner which will help the buyer to make as big a downpayment as possible. One has to keep in mind that the bigger the downpayment, the less the amount of loan that he/she has to take and, the lower the burden of EMI on him/her.
The arithmetic of investing
A simple SIP calculator will tell you that even a relatively small SIP of Rs 15,000 in equity mutual fund schemes can generate a total corpus of more than Rs 75 lakh. For example, if one invests Rs 10,000 every month and can earn a decent return of 12%, the total corpus created after 15 years will be Rs 75,68,640. If one can invest Rs 10,000 every month, the total value generated will be Rs 50,45,760, or more than Rs 50 lakh.
EMI on home loan
Now try to understand the significance of this figure. If the cost of the apartment is more than Rs 75 lakh, a lending institution – bank or NBFC – will provide a maximum of 75% of the cost of the property, or Rs 56.25 lakh. If you approach HDFC Bank now, it will loan you the amount but will charge 8.75% interest which will result in an EMI of Rs 46,246 if the loan is payable in 25 years.
You have to bear a far smaller EMI
Now consider someone who has run up a pool of Rs 50,45,760, he/she can take a far smaller loan – say Rs 25 lakh. It will reduce the EMI dramatically to Rs 20,554. This person can easily pay up the Rs 31.25 lakh (= Rs 56.25 lakh – Rs 25 lakh) from the wealth he/she has accumulated in the mutual fund SIP. If one begins at 25 years, he/she can easily by a house by the time he/she steps into the forties.
If you plan to buy your own property in your early forties, it won’t be too difficult, if you invest a part of your income in mutual fund SIPs, which can help you to increase down payment to take less home loan. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
