Considering a home loan EMI? Don’t be House Poor! Let your House be a blessing and not a curse!

Yes, that is a term. Being House Poor. Far too many times, we are pushed loans from banks like it’s nobody’s business.  Well some might say it is the bank’s business. The bank profits off of you and will try to trap you into a home loan that maximizes profit for them. Just because the bank decides to pre approve you for a loan where the EMI is 60% of your salary. Doesn’t mean you should take it.

The bank puts its own interests first. Not yours! So be careful when you see ads that say you “need” that vacation or you “need” that dream house. The only thing that anyone needs is the bank needing your interest payments!

We should move up in house as we bring up your income. There will always be a house which is right outside your budget. You would always want the next thing. I completely understand the way you feel and I know it is hard to settle for something which is logical when something nicer is just round the corner. It is however what you need. Try not to buy a house where your EMI is more than 25% of your household income. Let me tell you why.

Paying off an EMI is easier when everything is going fine. But this is when you have a stable household income. Suppose you or your spouse lose your job, the 25% may shoot up to 50% or even more. Or even worse, in case you are the sole breadwinner in your family and you lose your job.

The purpose of this imagination exercise is not to scare you. It is an exercise in negative visualisation. Case in point, take a step back and see how you look at your investments. It is a balance between the returns you will get vs the risk you undertake, why then should home ownership be any different? House EMIs need to be considered carefully with the return vs the risk that you take. We need to learn to live well within our means.

I understand in metros, it would be really hard to buy a house with the 25% benchmark. However, I suggest this to give you peace of mind. Take a few steps back to see why do you even want to buy a home? Most likely it is to call a piece of land yours and yours alone. This is in a way you are buying peace of mind.

Taking the maximum available loan and buying a home for you will not give you the peace of mind you are looking for. Constant stress for a duration of 20-25 years is no way to live your life. And no matter how much the house appreciates, remember the bank is making at least 10% on its loan back, every year. So please, do look at how much house can you afford and try to not take a home loan where the EMI is not more than 25% of your household income and duration is not more than 15 years.

 

 


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