When considering applying for a home loan, a borrower must understand that a major chunk of his/her income will go toward servicing loan EMIs. Individuals should plan payment of the home loan EMI before applying for such loans. Doing so can be challenging, especially for loans with such a significant tenor. Still, considering a few factors can help minimise financial strain during its repayment tenor.
Factors to consider while planning home loan EMIs
With a borrower’s stable employment, lenders are assured of timely EMI repayments. In that case, one can be provided with the option of higher EMIs. It may seem costly at first, but the benefit outweighs the initial burden in the long run.
If there is no existing debt, one can devote around 40% of monthly income to servicing a housing loan each month. The payable instalment may be found out with a home loan calculator. If there is a possibility of higher pay in future in the form of incentives, bonuses, hikes, one may continue to pay higher EMIs.
- Monthly expenditures
If you are using a house loan calculator, ensure to factor in the future expenses and not just the current ones. Such expenditure may include rising lifestyle expenses, family costs, children’s education, medical fees, personal expenses etc. Keep in mind that the monthly instalments will remain constant irrespective of inflation or other expenses.
There is a reason 20s are the ideal time for taking a home loan. To make it clear, when you are in your 20s, you may easily afford to pay bigger EMIs. However, it may not be feasible if a loan is availed in your 30s due to increased responsibilities and higher expenditure.
- Rate of interest
Borrowers may opt for either fixed or floating home loans. The former is comparatively higher, while the change in floating rates is dependent on lenders and market conditions. Hence, the amount of home loan EMI may vary as and when market conditions changes.
Even while calculating the monthly outgo in a home loan interest calculator, borrowers must remain prepared to pay higher EMIs in a few months.
- Loan tenor
If you seek to liquidate the home loan within a short tenor, a major part of your salary will be spent paying the EMIs. Otherwise, you may opt for a loan duration ranging between 15 years to 20 years. It helps you to repay the loan slowly and steadily, without having to spend a large part of your salary. For a longer repayment period, you can decrease your home loan interest and vice-versa.
- Standard of living
The payment of EMIs affects the lifestyle of borrowers. Since a large portion of income goes towards servicing the loan, every expense needs to be checked. Use a housing loan EMI calculator, if need be. It is prudent to consider the standard of living, decrease/increase in income, career choices in the forthcoming years, ability to switch jobs, future goals, retirement plans etc. before planning the monthly instalments.
While considering these factors, follow up with your chosen lender about their terms, conditions, and application process. Some lenders facilitate processes like pre-approved offers. Such offers are extended on secured credit like a loan against property, home loan and more. Check your pre-approved offer by submitting a few basic details.
Once the payment of home loan EMI starts, you should remain mindful about the monthly expenditure or even curtail a few expenses to ensure a timely repayment. Any EMI default would lead to adverse consequences from the lender’s end and bring down the CIBIL score.