Close

	Receiver's Name:		*
	Receiver's Email:		*
	Your Name:		*
	Your Email:
	Your Message:

How Much Home Loan Should I Take?

You might have already decided to buy a house through a loan, but before you apply for the loan you must answer how much loan you have the capacity to take. Do not make the mistake of taking a small home loan when your income can support a higher loan. Likewise, do not take a large loan when your income cannot support a huge amount.

Do you have the capacity to take a small or a large home loan? Please consider the following factors before deciding upon the size of your loan:

a. Income

You need to consider the amount of money that you earn as well as the stability of your income. Many people choose to take a more expensive home upfront as they think that their income will increase as a result of their income growth and career progress. This will make even large EMI payments an ever decreasing percentage of their monthly expenses.

Some of the questions that you need to answer before making this decision are:

• How much increase do you expect on a yearly basis? How confident are you in getting this raise?
• Is there any risk of you losing your job such that you might not be able to afford to pay the EMI?
• What are your chances of getting a new job in case you lose your present one?
• Will large EMI payments interfere with your goals of retiring early, taking a mid career break, or even paying for your children's education and marriage?
• Will your spouse continue to work and financially contribute to the household during the tenure of the home loan?
• Do you expect to get a lump sum bonus or variable pay at the end of the year that can be used to fund your home purchase

Have a realistic view of what your income and career prospects can support – don't be over optimistic about your future income.

b. Personality

No two people have the same personality or attitude towards debt. Some people can sleep soundly at night knowing that they owe Rs.30,000 per month for the next 25 years. Other people worry about taking a loan for such a long tenure.

Know your personality type – can you live with a big loan or would you feel safer with a small loan?

c. Expenses

The home loan lender calculates your loan eligibility based on your current debt and monthly expenses. You must identify whether you might have other expenses that you currently do not have, but expect to incur in the near future.

• Do you have plans to buy a new car? Where will you fund the EMI for the car from?
• Have you planned for your children's college education and marriage? Will you need money for these activities, and will you still have enough to pay fund these after your home loan EMI?

d. Lifestyle

In life one has to prioritize one's goals and activities to achieve what is important to us. Are you willing to change your lifestyle to get the house you want? Maybe if you cut your spending a little, the bigger loan just might be within your reach. Ask yourself whether you and your family can handle:

• Fewer shopping trips to the mall
• Less frequent expenditure on entertainment – movies, eating out, latest cell phones
• Fewer vacations, or take a domestic vacation in stead of going abroad

Sometimes you do not realize how much of your money is going towards useless expenditure. If you can cut down on this, then maybe you can afford a bigger home loan. Discuss with your family the pros and cons of taking a bigger loan and cutting down your family's lifestyle related spending. And do remember that it always pays to compare home loans before taking any decision.