Home Loan trap??

What is a home loan trap??

Few people buy a house as an asset and a steady income generator, and the majority buy to create an asset by paying EMI more than the present rent.

The majority think they could shell out extra amount every month so they can stay in their own house,so whats wrong with that thinking??

Lets check whether it is wise to buy a house by taking a loan??

Yes & No

lets check why it is unwise to buy a house by taking a loanThe loan amount and tenure is a deciding factor which change your EMI and drastically change your lifestyle.

lets take an Scenario for the same A person earning 1 Lakh.p/m buys a house for 60 lakhs by taking a loan of 50 lakhs @ rate 7% p/a his EMI would be 38765 p/m for a tenure of 20 years. assuming it as an apartment there would be an extra costs of maintenance of 2000 p/m so total 40k p/m is the cost of Monthly expenditure towards owning the house. so for 20 years if we calculate the total amount spent is 96 lakhs, hoping the property value doubles after 20 years we can check the return on investment in the below calculations

1.2Cr - 96 lakhs = 24 lakhs

so total Return on investment is 25% for a total period of 20 years. which equates to compound interest of 1.12% annually which is very less.

the cost of living in the house which is unfurnished

Wood work + modular kitchen + new furniture + miscellaneous expenses = 10 lakhs

Transportation cost to work location(after eventually wfh ends) 3k per month

now the actual cost of the house is 10 lakhs initial payment + 10 lakhs furnishings + 96 lakhs total emi

= 1.16Cr which is almost equal to double the purchase price of the house. Excluding future minor repairs and repainting.

Lastly interest rates change annually can swing from 6% to 11%

Now lets check for a better solution 

90% of people come from different places and leave their hometown , they tend to invest in the current city they live and fall into debt trap.

Never buy a house if you cant afford the Emi ,Buy assets in your hometown which are safe, Major cities have many fraudulent builders and real estate agents who tend to sell unapproved layouts.

never let your Home loan emi cross over 40% of your  total income

never let your total Emis from all debts cross over 60% of your total income

Invest in multiple Financial instruments like Bonds , NPS, Traditional insurance plans, also keep your 20% funds in highly liquid investment plans

always have a plan to save 30% of your income

Get a house for lease in cities which cost less and will always have an option to change the location

There are many investment plans which provide more than 9% returns per annum invest in them 

Focus on buying a commercial property which can provide higher rent than houses, it may be costlier than buying a house but will be worth more than a house with less maintenance