Can A Home Loan Turn Into A Bad Debt?
Times have changed and not many of us can afford the luxury of a debt-free life, something our parents and grand-parents enjoyed. There is also a shift in the way people looked at borrowing. Unlike our elders, we do not perceive debts as harmful. Not only do loans save us in our time of need, they also help us save on taxes. Experts are also of the opinion that debts should be part of one's financial planning, and this planning should be done in a way that the borrower makes the most of his borrowing capacity. Based on the analysis, debts have been categorised into good and bad. While a housing loan is looked at as a good debt, personal loans are considered risky propositions. So, you thought, as a home loan borrower, you do not have much to worry. Not really. Home loans, too, could turn into bad debts if due care is not taken while applying for them, and while you are repaying them.
Grabbing all you can take
In your eagerness to possess a property as soon as possible, do not lose your composure. Bite off only that you can chew. There is a near-unanimous opinion among finance experts that only 40 per cent of your take-home salary should be spent towards EMI (equated monthly installment) payments. However, this advice is often ignored while the pressure to finish the process quickly builds around you. Because your credit score allows you to do so, you try to take as much loan as the bank would grant. A heavy EMI burden would put immense pressure on your monthly expenditure and may leave you in a situation where you would be forced to lead a boring life. The movie outings over the weekend or the frequent dinners with friends will no longer be on your calendar. Living such a life for a long time may be detrimental to your personal health.
Lesson here is that you have to factor in your lifestyle when you decide the loan amount.
Ignoring the “formality”
Many people also make their homemaker housewives a co-applicant in their loan application to borrow a bigger amount. This is often taken as “just a procedural formality” to claim a bigger loan, an idea which is quite ill-founded. In case of an unforeseen event such as you losing your job, your homemaker wife will be responsible for paying off the debt. Considering she has no source of income of her own, your property might be reposed by the bank.
Precisely for this reason, keep the amount as low as possible if you are the sole earning member in the family. When the time comes, you might realise that the mere “procedural” things that seem of little significance in the present might turn huge in future. Nothing is just a “formality”, especially in the world of finance.
Also read: A Guide To Get Home Loan Against Property