Buying a housing property is a very big financial commitment on the personal front. Attractive and aggressive home loan schemes coupled with tax incentives has made it easier for younger people to invest in housing properties. Buying a housing property and financing it through home loan has many benefits; however it requires a certain amount of financial planning on the individual's part in order to make the process easier throughout the loan tenure.
Cyclic trends in interest rates
The interest rate cycles have shrunk over the past couple of decades. We are seeing a lot of volatility and cyclic trends in the interest rates. Real estate, especially the home property market has seen a major shift in the last few years. There has been an increase in the aggressiveness of real estate developers, home buyers and housing finance companies. Also, the globalisation has brought in many factors that influence the macro economic conditions in general which impacts the interest rates. Since home loan is a long term commitment, it is important to mentally prepare for cyclic trends in the lending rates and do financial planning to be able to pay higher interest rate during certain period of entire loan tenure based on market conditions.
Planning for other financial commitments
A home loan is a long term financial commitment with the payment tenure being more than 10 years in most cases. Therefore, it is important to think about various personal milestones and financial commitments and chalk out a strategy to manage personal finances accordingly. People should also be careful while signing for attractive looking teaser home loan schemes which promise a lower interest rate during initial few years and higher floating rates after a couple of years. These are some of the important aspects that borrowers should keep in mind while planning their financial aspects for purchasing a housing property:
Although, people resort to stretching of their finances while buying a housing property, they should be careful in stretching beyond their means as there is another added variable of interest rate fluctuation, spells of bad economic/market conditions etc which should be carefully factored into the financial planning.
It is important to create a financial cushion which can be utilised to fund any extra financial burden during certain periods. People can invest in equity or debt based investment instruments based on their risk appetite. This accumulated fund can be used for the financial requirements or part-prepayment of loan to reduce the EMI burden in case of high interest rate periods.
It is important to carefully do due diligence in choosing your housing finance company (HFC). HFC becomes your long term partner and at times it is not so easy to change the HFC or it requires additional cost to do so. Since a home loan is a long duration commitment, it is important to take some time and be a little selective about the HFC.
It can be helpful to take feedbacks and cross check the experiences from friends, relatives etc about the past dealings of the HFC. It helps in understanding various positive and negative aspects regarding a certain HFC and therefore helps in getting tied with the right lender.
The home loan insurance schemes are available through various insurance companies and they cover the home loan liability of an individual.
These policies cover the home loan if something happens to the borrower. In these policies, the sum assured is adjusted against your home loan liability with every EMI paid. Home loan insurance comes in handy for the risk averse investors and those who do not have adequate insurance cover for their life.
Many home loan insurance products provide a cover to pay the EMI in case the borrower met an accident, suffered a prolonged illness or loss of job. It is important for borrowers to spend some time and figure out the appropriate insurance product that fits their need.
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