After months of house hunting or car shopping, you’ve chosen your Dream Home or Car! And you’re certainly smart enough to know not to just save but to invest for it! What next?
It’s crucial to set a budget that’s in line with your current repayment capacity. Resist the temptation to opt for a house or car that you can’t really afford and struggle with the EMIs later.
Mutual Funds offer an advantage as you’re saving for a house or car that you will buy in the future. This major purchase will cost more tomorrow due to inflation. And the younger you are, the more risk you can take currently with fewer financial commitments.
Budget for the EMIs as well
Many people buy homes and cars on loan nowadays due to the large ticket size. Don't just plan for the 10-25% down payment but the EMIs as well.
Consider "Miscellaneous" Charges as well
For example: stamp duty (from 5% to 7% of the property value), registration cost (at least 1%), memorandum of title deed charges (0.1% of the loan amount), interior decoration, brokerage fees, legal fees and insurance. Though it is difficult to have exact numbers beforehand, a rough idea is much better than nothing.
Work on your Credit Score
A good credit score not only helps you get a home or car loan but also enables you to bargain for better interest rates. For example, a home loan of Rs 60 Lakhs for 30 years at 8.7% p a means Rs 1.09 crore in interest charges. With a poor credit score, the same amount at an interest rate of 10.5% over 3 decades implies in a total interest of Rs 1.97 crore!
Compare Loan Options
Don't only compare the interest rates of various home loans but also the processing fees (0.25% to 1% of the loan amount), pre-closure charges (up to 5% on fixed-rate loans) and late payment fees. Considering all the aspects of a home loan package will provide you a more accurate picture of the actual cost of borrowing.
Reap the Tax Benefits
Under Section 80Cof the Income Tax Act, you can claim up to Rs 1.5 Lakh per fiscal year on the principal repaid. And under Section 24, you can claim up to Rs 2 Lakhs per fiscal year on the interest paid on your home loan.