Sometime back when there was a boom in the IT industry, people went haywire on investments. Most of them took a safe way of buying a flat with a loan for their own use or as a rental investment.
More than 60% of the crowd went with a housing loan, which was taken for more than 20 years to reduce the burden of EMI.
This even became a mandatory living procedure for many of the corporate employees, get a corporate job, buy a flat, pay EMI till you die.
Well !! I can’t complain about it because most of us practice the theory of following the herd.
Consider you buying a flat worth Rs 40,00,000, where you have to pay a minimum of 30% of your money and rest you apply for a loan ( banks usually give only 70-80% of the cost). So you will take all your liquid cash, gold, your fixed deposits, and whatever life savings you had to pay the initial amount. ( i.e Rs 12,00,000 ).
Loan EMI Calculator
Now you have invested all your life savings into buying a flat and gave up all your emergency fund.
So now you have booked your flat and processed your home loan of Rs 28,00,000 @ 8% ( taking 2020 home loan interest rate reference) for 25 years. You start paying an EMI of Rs 21,600 from the following month.
If your flat is ready to occupy it is well and good, else consider paying house rent and EMI together for the time till you get your flat.
By this decision, you have increased your monthly liability, and you have risked all your savings and emergency fund.
From now on if you have to make any decision involving money, you should keep your monthly EMI in your mind.
| Flat cost | Rs 40,000,00 |
| Interest paid on Rs 28,00,000 for 25 Years | Rs 36,83,000 |
| House rent Rs 10,000 paid for 3 years (Approx) | Rs 3,60,000 |
| Interest Lost on Rent for 3 years @ 4% Interest | Rs 45,000 |
| Total Cost of your flat | Rs 80,88,000. |
Consider adding government paper charges, loan processing charges, maintenance charges, and other expenses incurred during the possession to your cost.
Would the cost of your flat be all worth for all that stress and the risk you took ??
If you decide to sell your flat, consider an average of 10% appreciation every 5 years . Will it be worth ?
Let see how that works !!!
So you bought a flat for Rs 40,000,00 and rent it for Rs 12,000 ( market rates). You will have a return of approximately 1,40,000 after all maintenance ( Property tax, association charges, etc, etc )
If you had that same amount in the fixed deposit for 1 Year at an interest of 5.8 % (2020 FD rate), you will have Rs 2,32,000 as interest payout.
But, yes there is an appreciation for your flat till 20 years but is that appreciation all worth. You have to decide on that. There is a better appreciation for individual plots.
If you put that Rs 21600 ( EMI) as a recurring deposit for 10 years @ 5.5% (2020 rate ) interest.
After ten years you will have Rs 34,56,273
Or you can buy a plot somewhere around a developing area and built a house after 10 years, still a smart move.
Kindly consider all options before you make any big financial move, Unless you have plans and agendas to pre-close your loan with 5-10 years.
Living life peacefully has its own importance .
Good article..much needed one especially the last line ..Living life peacefully has its own importance.
Thank you Guru !!! thanks for connecting.