Skip to main content

Plan finances and manage Housing Loan EMI repayment well

The last few quarters have been quite tough for the people dreaming of buying a home. The interest rates on housing loans have gone up from the 2004-05 levels. Many people thought that property prices will come down significantly due to the rise in home loan interest rates. However, contrary to expectations, property prices have never come down significantly, and in fact, have gone up in many areas.

So what affects property prices?

Some factors that dictate property prices:


Rise in input costs


With the inflation ruling high globally (especially here), the prices of all basic commodities has increased quite significantly over the last few quarters. For example, the cost of labour, steel and cement has gone up quite significantly in the last few quarters. Due to higher input costs, builders cannot reduce property prices in their newly-launched projects.


Investments by foreign investors


Many foreign investors believe that there is huge potential in real estate and the returns will be quite attractive. Foreign direct investments in realty projects has increased quite significantly over the last few quarters as more foreign players are investing in real estate projects here.


Should you defer purchase?


Experts suggest that investors willing to buy residential properties should not wait. It is better to invest at current levels. The inflation rate is ruling at quite high levels (above 11 percent) and is expected to remain high in the short to medium term. This means the rise in input costs of properties will continue and builders will be forced to raise the property prices in future.


Also, home loans attract income tax incentives for the borrowers. This means it is good to invest early in property. However, investors should factor in some variables while going in for a home loan. As a home loan is a long-term commitment from the borrower, it requires proper financial planning. Typically, a home loan tenure is 15 to 20 years.


Some factors to consider while availing a home loan:


Scheme

First of all, a borrower needs to decide on whether to go in for a fixed or floating interest rate home loan. Usually, the rate of interest is 1-1.5 percent higher in fixed interest rate options. Borrowers with stability of income can go for the floating rate option while the risk-averse should opt for the fixed interest rate loans.


Plan finances

Due to the higher inflation rates ruling globally, the Reserve Bank of India (RBI) is bound to take tough monetary policy measures. As a result, interest rates might go up in the near future. Investors should factor in some interest rates hikes while calculating their equated monthly instalment (EMI) outgo. Usually, banks absorb small interest rate increases by increasing the tenure of the loan. However, in case of sharp rises in interest rates (seems unlikely from current rates) investors can look for partial pre-payment and partial increase in the EMI outgo.


As a thumb rule, the EMI should not be more than 40 percent of the borrower's take-home income. Also, since a home loan EMI is a long-term issue (usually 10 years or more), investors need to plan other expenses like child's education, marriages in the family etc and adjust their outflow accordingly


Investing in property


  • Invest early in property

  • Home loans attract tax incentives

  • Factor in some variables while availing a home loan

  • Decide on fixed or floating interest rate home loan

  • Anticipate interest rate hikes while calculating EMI

  • In case of sharp interest rate hikes, look for pre-payment and partial increase in EMI outgo

  • Plan a reserve pool for other expenses and commitments

Popular posts from this blog

Tata Mutual Fund

Being a part of the Tata group, the fund has the backing of a very trusted brand name with strong retail connect. While the current CEO has done an excellent job in leveraging the Tata brand name to AMC's advantage, it is ironic that this was just not capitalised on at the start. Incorporated in 1995, Tata Mutual Fund remained an 'also-ran' fund house for around eight years. Till March 2003, it had a little over Rs 1,000 crore in assets and 19 AMCs were ahead of it. But soon after that the equation changed. It was the fastest growing fund house in 2004 and 2005. During these two years, it aggressively launched six equity funds, two debt funds and one MIP. The fund house as of now stands at No. 8 in terms of asset size. This fund house has a lot to offer by way of choice. And, it also has a number of well performing schemes. Tata Pure Equity, Tata Equity PE and Tata Infrastructure are all good funds. It also has quite a few good debt funds. The funds of Tata AMC are known to...

UTI Mutual Fund

Even though only a few of UTI’s funds are great performers, this public sector fund house has many advantages that its rivals do not. It has a huge base of retail equity investors and a vast distribution network. As a business, it looks stronger than ever, especially in the aftermath of credit crunch. UTI is, by a large margin, the most profitable fund company in the country. This is not surprising, since managing equity funds is more profitable than debt. Its conservative approach and stable parentage is likely to make it look more attractive to investors in times to come. UTI’s big problem is the dragging performance that many of its equity funds suffer from. In recent times, the management has made a concerted effort to improve performance. However, these moves have coincided with a disastrous phase in the stock markets and that has made it impossible to judge whether the overhaul will eventually be a success. UTI’s top performers are a few index funds, some hybrid funds and its inf...

Salary planning Article

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

8 Investing Strategy

The stock market ‘meltdown’ witnessed since the start of 2005 (notwithstanding the recent marginal recovery) has once again brought to the forefront an inherent weakness existent in our markets. This is the fact that FIIs, indisputably and almost entirely, dominate the Indian stock market sentiments and consequently the market movements. In this article, we make an attempt to list down a few points that would aid an investor in mitigating the risks and curtailing the losses during times of volatility as large investors (read FIIs) enter and exit stocks. Read on Manage greed/fear: This is an important point, which every investor must keep in mind owing to its great influencing ability in equity investment decisions. This point simply means that in a bull run - control the greed factor, which could entice you, the investor, to compromise with your investment principles. By this we mean that while an investor could get lured into investing in penny and small-cap stocks owing to their eye-...

Debt Funds - Check The Expiry Date

This time we give you an insight into something that most debt fund investors would be unaware of, the Average Portfolio Maturity. As we all know, debt funds invest in bonds and securities. These instruments mature over a certain period of time, which is called maturity. The maturity is the length of time till the principal amount is returned to the security-holder or bond-holder. A debt fund invests in a number of such instruments and each of these instruments would be having different maturity times. Hence, the fund calculates a weighted average maturity, which would give a fair idea of the fund's maturity period. For example, if a fund owns three bonds of 2-year (Rs 30,000), 3-year (Rs 10,000) and 5-year (Rs 20,000) maturities, its weighted average maturity would be 3.17 years. What is the big deal about average maturity then, you may ask. Well, knowing a fund's average maturity is important because it tells you how sensitive a fund is to the change in interest rates. It is ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now