It is that time of the year when most prospective home owners start actual purchase process on a property of their choice. Here are a few tips that will help you to make the most significant and hassle free real estate investment of a lifetime –
Reduce your liability with higher down payment: According to the recently brought in a new ruling of Reserve Bank of India, that will be effective from February, this year to curb property values being inflated. According to it, the stamp duty, registration and other taxes like VAT and service tax on property will be excluded when property value will be considered for determining the home loan amount. This means that home loan borrowers need to pay these charges as part of their down payment. The borrowers should not take this news negatively as it is actually a blessing in disguise.
You must be asking, how?
Its simple, the more the down payment, the lesser the amount of home loan and consequently, lesser the interest on loan.
The experts suggest that the borrowers should strive to increase the down payment as much as they can afford, it will help them to save both the interest cost and the time to repay the loan, helping them to become the actual owner of the house without having to wait it out for 20 or more years.
Proper time planning for purchasing dream home: It’s good to choose a time to buy your dream home at the time when builders try and promote the sale of property with attractive discounts. This typically happens during the period before interest rates begin the downward trend, at this time builders like to quickly sell out slow moving projects that had accumulated during a high interest regime. In fact the time now is ideal as the exact scenario of real estate market, described above is unfolding now, with interest rates expected to decline anytime in the next few months.
Borrow home loan when interest rates begin downward trend: You should try and borrow home loan when interest rates begin the downward trend to cash in on the falling rates, it will help you lower the interest cost of your housing loan.
Decrease tenure through partial prepayments: A part of your savings can be used to prepay the loan and to reduce the tenure. If your loan amount is well within 40 per cent of your income, you could easily set aside money to prepay at regular intervals. Try and set aside 10- 20 per cent of your income for repayment of home loan from your saving. It is suggested to accumulate this amount every quarter and make a quarterly prepayment of your housing loan. With most housing finance companies and some banks having done away with pre payment charges, this is a good incentive to make the prepayment of loan. Even if there are pre-payment charges, please note most banks do not charge a penalty for partial prepayments up to a certain limit. Verify these details before you plan the prepayment of loan and make the most of the specifications for prepayment.
Moving to a better and bigger space while repaying the current home loan: Generally a home loan has a very long tenure and the cycle is filled with highs and lows in interest rates, which can easily stretch the loan to several years unless you actively follow some the steps detailed above to repay your debt quickly. After the first five or six years of your home loan, you might want to shift to a bigger house or a better location as your needs dictate. In such an instance, you can, after a discussion with your bank, sell your existing home for a good profit, and repay the remainder of your loan. You can then shift to a bigger home with a new home loan and a higher down payment.
On an average, in this case, it is best to restrict your loan tenure to 10 years if you opt for a 20 year loan. Factor in your career prospects, increase in passive income, spouse’s income, accumulated savings etc. and optimise the benefits from these factors to close out your debt.