Mortgages: How much do you think you can afford?
When you decide to buy a house, you have to see how much of your salary should go towards Mortgage. Experts state that spending 30% of your salary on EMIs is ideal. You can’t make your decision purely based on that information because there are various expenses related to home loans besides interest to take into account. Here are a few tips to determine how much you can take out as a home loan:
Take It Personally
When you take a look at home loans, keep in mind your household expenses. The 30% rule doesn’t work for everyone, so try keeping a cap on your personal expenses after calculating your expenditure. For example, keep a maximum limit of 25% on your household costs and spend only 20%. That way if there are any changes in your income or the interest rates, you’ll still be able to pay your monthly EMI. Calculating debt-income ratio is essential for planning out your finances.
Try the 28/36 Rule
Another trick to try out would be to set your mortgage payment at 28% of your salary. Now add your household and other expenses to it; it should add up to a total of 36%. If the amount goes above this, it would be wise to take a smaller loan. Some lenders grant loans even when the EMI encompasses 40% of your monthly income. But this is not advisable because setting such a tight budget could result in a serious strain on your finances. Bajaj Finserv allows a 3 month EMI holiday if you opt for one of their Home Loan schemes
Re-evaluate Your Life
You have to look at the lifestyle you want to maintain to determine the answer to the question – ‘what percentage of your income should your Mortgage be?’ If you’re willing to cut down on unnecessary expenses like eating out, entertainment, and vacations, you can afford to pay a bigger EMI.
When you’re planning out your home loan repayment, keep these tips in mind. There are two types of home loans based on duration, and using that as a guideline, you can further narrow down on how much to set aside for your mortgage.
Short Tenure Home Loans
A short tenure home loan usually has a repayment period of 10 to 15 years. If you can’t bear the anxiety of fluctuations in interest rates, you should opt for this kind of loan. A shorter tenure means a higher EMI every month, so you’ll need to save a bigger part of your salary to spend on repayment.
Long Tenure Home Loans
A long tenure loan can go up to 30 years. The monthly EMI amount is relatively low for these types of loans. Fluctuations in interest rates means that you need to able to increase your income to make it easy for you to continue paying the EMI.
If you’re looking for a reasonable repayment rate, apply online for Home Loan at Bajaj Finserv, they provide interest rates of as low as 9.85%.