Home Loan ? || Things You Must Know || Must Read

Hi Friends,

So, I'm back to blogging after long break. You'll again start finding weekly blogs from me now. 

Moving towards today's topic I tried to address the very most & important dilemma, which most of us don't want to address or ignore. 

Yes, and if you're pointing out towards "How to make girlfriends", you're wrong.  
Today, It's "Your Money, Your Home Loan. Is it really Worth ? "

There are few things you should make up in your mind before you go ahead reading my blog. These are -

1. All the data's presented below are just result of my research & observation.
2. It's absolutely your decision to make your choices about home loan after your done with this article.
3. Opinions represented here are my personal & I in no way suggest you to take your decisions. 

Cool, That's too much of stuff, lets move forward & talk about the topic in layman's term.

Let's begin.

 Like everyone else even I'm planning to own my dream home & thus started exploring this complex web & ended up with below observations.

Since, My blog is dedicated to the youths, I'm trying to narrate the scenario through a young character Raj.

"Raj is an IT employee & had been working there since 5 years. As he moves on he's put on with more responsibilities. He has to get married but before that he plans to buy his dream home. He plans a visit to one of his friend Rahul. Rahul & Raj comes up with some stunning facts that left them shocked & re think about their decision to buy a dream Home?"

Here's the details of Raj - 

Age --> 27 years
Gross Salary = 54,000.00 INR/Month
Take away (Salary credited to account ) - 50,000.00 INR
Bonus @ End of every Year - 60,000.00

Investing @ Standard 2 BHK house in Bangalore amounting = 70.00 Lakh INR

Retirement Age = 65 years

Sources for funding -

• 11 Lakhs Saving from past 5 Years (After all expenses).
• 15 Lakhs Support from family.
• Loan Required - 44 Lakhs (Exceeds his eligibility).

 Interest Rate for Home loan - 9.85%.

Out of various possible calculations they made together, I'm trying to explain 3 of them as simple as I can. So, lets open up your mind for a very lazy calculation. 

Case I -Maximum but Possibly Worst.

Loan Amount (Max. of Raj's eligibility ~= 38 Lakhs.
Loan Tenure (Period, Min. possible for the amount requested ) = 30 Years.
EMI towards bank (Per Month) = 33,260.00 INR (Standard, Fixed Interest Rate)

Before , we move towards interesting calculation, In the mean time you can have a look at the attached snap which shows various EMI schemes by a miscellaneous bank searched by Raj & Rahul.

This picture shows the very first calculation for HomeLoan by Raj.

Here's the horrific data out of above.

Total amount paid to bank after 30 years = 33,260(EMI) * 12(in a year for 12 months) * 30(Total year for loan) = 1,19,73,600 (1crore , 19 lakh, 73thousand , 600 rupees)

Which is 3.15 times of the loan Raj took.

Before, we comment anything lets see how it goes when ther's small fluctuations in tenure & amount.

Case II -So called Moderate.

Loan Amount (choosen by Raj) ~= 30.0 Lakhs.
Loan Tenure (Period, Min. possible for the amount requested ) = 14 Years.
EMI towards bank (Per Month) = 33,086.00 INR (Standard, Fixed Interest Rate)

And, Yeah of course you can analyse for yourself first by looking at the image.

This image is a clear example of how Raj is trying to adopt.

May be you find at least this data a bit relaxing.

Total amount paid to bank after 14 years = 33,086(EMI) * 12(in a year for 12 months) * 14(Total year for loan) = 55,58,448 (55 lakh, 58 thousand , 448 rupees)

Which is 1.85 times of the loan Raj took.

Case III -Possible fair deal.

Loan Amount (choosen by Raj) ~= 25.3 Lakhs.
Loan Tenure (Period, Min. possible for the amount requested ) = 10 Years.
EMI towards bank (Per Month) = 33,294.00 INR (Standard, Fixed Interest Rate)

Let's see what this leads to. Have a look at the image first.

This image is all about the best Raj could find.

Here's yet another surprising data out of above.

Total amount paid to bank after 10 years = 

33,294(EMI) * 12(in a year for 12 months) * 10(Total year for loan) = 39,95,280 (39 lakh, 95 thousand , 280 rupees)

Which is 1.57 times of the loan Raj took.

Raj is now puzzled on what & how to do the stuffs. He's now planning to seek help from a financial adviser who in turn is going to charge him again.

Let Raj think about this & make his decision. we've observed alot many things from his research & lets try to jot them down. 
  

So, what do we conclude out of this very calculations are - 

• The More the Tenure(time) for loan. The more You pay. @ Interest rate of 9.85%.
• If your investment is not wise, you may actually end up paying more money than your property even after 30 years. Case - I by Raj is an clear example of that.
• The best possible Loan amount is some where around 40% to 45% , where you end up paying around 1.4 to 1.7 times the actual loan amount after the tenure is complete.

The decision is all yours now. All the best.

My only suggestion which you should take away while you're reading the last line of my blog is "Think & Invest".

Note :- Don't forget to like, subscribe & comment if you found it useful & wait for my next article on "Renting Vs. Buying an House".

Thank you & Regards,
Prateek