14 JANUARY, 2022

A home loan can be a great help when you are looking forward to buying your dream home. You move into the house without worrying about repaying the amount immediately. The lenders allow you to choose a tenure as per your financial viability where you can repay the loan in intervals. However, a home loan can significantly alter your budget, increasing your monthly expenditure. Therefore, the decision to avail a home loan should never be on impulse, and you must be 100% sure about applying for one. To help you decide if you should take a home loan, you should check your home loan eligibility and ask yourself these five questions.

  • Can you afford the loan?

You could be tempted to buy your dream house with a home loan. However, can you afford it? A home loan means you will have to pay EMI every month for almost two decades. You might have to cut on other expenses or stretch your budget too far. Therefore, you must be financially stable before you plan to avail a home loan. Checking your affordability with a home loan calculator can help you.

  • Have you saved for emergencies?

Emergencies arrive unannounced. Before deciding on the loan amount, check if you have enough funds to deal with an emergency. You must have an emergency fund or corpus that contains funds worth at least six months of your salary or funds that can cover 12 months of your expenses. You must have liquid funds in your hand to handle the financial crisis caused by events like loss of job, medical emergency, etc.

  • Do you know the taxation aspects?

Taxation benefit is a significant reason why many borrowers take high loan amounts. They believe that by opting for high EMIs, they can save a lot on tax. While it is true that you can avail tax benefits on a home loan, you must know that there is a maximum cap on it. You can only claim an amount of up to Rs 1,80,000 on your principal repayment and Rs 2,00,000 on the interest repayment, irrespective of the amount you pay for repayment.

  • Can you manage to pay the down payment?

While you can avail a home loan to buy a house, you still need to pay down payment upfront. The lenders require you to pay at least 15-20% of the loan amount as a down payment. Although lenders suggest paying a higher down payment to reduce the loan amount, you must be careful. You must not spend your entire savings towards the down payment. Consider other goals and other substantial monthly expenditures while determining the down payment and loan amount.

  • Do you have other significant goals to accomplish?

There are high chances that taking a home loan would pause your other goals like saving for retirement or children’s future. However, you must avail a home loan that allows you to save for essential life goals, like children’s education. You must prioritise your goals and choose a loan amount that helps you save for them as well.

A home loan can significantly alter your finances and budget. Therefore, you must consider all factors before you apply for home loan. These questions can help you assess your financial standing and make an informed decision.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.