The wait-and-watch policy is only valid if there are informed reasons for anticipating a correction in a certain locality. On the whole, property rates in Pune will either remain stable or appreciate, depending on the area. Also, there are no prospects of home loan interest rates rationalizing over the mid-term, and economic indicators suggest that inflation will continue to drive up costs.
Given that it is the right time to avail of a home loan and purchase a property in Pune, one still needs to consider the financial implications. As a thumb rule, an individual's home loan EMI should not exceed a rational percentage of his or her net monthly disposable income. Generally, EMIs can amount to 50 per cent of monthly income.
However, home loans are not the only cause of debt in the contemporary context. People take out personal loans and have pre-existing debts, too. In other words, even a 'fair' EMI percentage could prove unaffordable. The 'ideal' EMI component can only be calculated vis-à-vis a debt-free person's salary. This would be between Rs. 1000-1200 per lakh.
People availing of home loans sometimes forget that they are under legal obligation to repay. There are numerous cases where borrowers have neglected to undertake a due diligence with regards to their financial capabilities and the suitability of the loan of which they have availed. As a result, they find themselves in debt traps and sometimes default on their repayments. Borrowers should stretch themselves only to the extent that they realistically foresee their financial position improving in a given time frame.
No home loan strategy should ever be based on anticipated financial windfalls as a means to pay off the loan. It should be based on realistic factors such as reasonable salary hikes and maturing of insurance policies and investments. If one anticipates a salary hike, even if this amounts to only a certain annual increase, one can consider a 'step-up' option for the existing home loan. Here, the borrower pays a lower EMI initially and steps up the repayment of the home loan in proportion to the assumed percentage increase in income.
(Kishore Pate is CMD of Amit Enterprises Housing Ltd.)
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