Home Loan is a secured loan offered by non-banking, housing finance companies and banks against the security of the house you are buying. Home Loan is offered for purchase or construction of a house. The property is mortgaged to the lender as a security till the time the repayment of the loan is fully made. If the customer fails to pay back the loan, the lending institution can recover the lent money by selling the property
Buying a home is one of the biggest financial investments we make in our lifetime. Buying a home not only has a sentimental value, it probably is one of the biggest investment we make in our life time. For those who already have a home will also vouch for the fact that capital appreciation of this investment is one of the highest among various asset classes. With rising inflation and increasing rents, you should have your own home as early as possible in your life.
Why you should buy a home early in your life?
EMIs are less as the tenure is long
The young borrowers are often at an advantage since they can opt for longer tenures. A longer tenure simply means that the EMI will be lower and affordable to the young buyer. For example - a 45 year old applicant can get a maximum 15 years tenure loan assuming his retirement age is 60 years, whereas a 30 year old can go for a home loan of 30 years assuming the same retirement age.
Now let us look at the approximate EMIs for both the borrowers - Assuming Loan amount is Rs 30 Lakhs and the interest is 9%, the EMI for 15 years loan will be Rs 30,428 whereas the EMI for 30 years loan would be only Rs 24,139. As you can see the EMI is lower than 20% for the young borrower.
Financial burdens are less when you are young
When you are young you have less financial burdens due to less family obligations and also because your kids are young and their higher education etc. are many years away. Therefore, due to fewer liabilities, lenders can be certain that you will be able to pay your home loan EMIs on time, and thus will favour to sanction your home loan. Not only that, when the liabilities are less you can focus solely on paying the home loan EMIs and by the time your other financial liabilities increases you are able to meet them as your income also keeps increasing. However, once a home loan EMI is fixed it does not increase in future.
You are perceived as a low risk applicant
Being young you are likely to be in good health with a stable income and a long working life ahead. Not only that, the future increase in salary of a young person is much higher than that of a person in his 40s or 50s. These factors make the lender perceive you as a low risk applicant and therefore, chances of your home loan approval get higher.
You can invest in under construction properties
If you are young, you can invest in a under construction property and can afford to wait for few years till the project is completed. The benefit is that during the construction period, the lender pays the loan amount in instalments which is generally linked to the progress of the under construction property. Therefore, you start with a low EMI and once the full loan amount is disbursed (i.e. upon possession of the property to you) that you start paying the full EMI, This helps you acquire the property by paying in small instalments initially when it is not ready. The other benefit is that builders generally offer some discounts when you are booking the property when it is getting launched as the try to sale off the project as soon as possible.
You can create better credit score
Once you start paying the home loan EMIs in time, your credit score improves. As you are young, chances are that you might pay off the loan much before your retirement. By paying of the loan in time, your credit score improves and thus a higher credit score ensures that in future you can take other loans, like education loan for your child or a personal loan or a loan for buying another asset etc. easily at a cheaper rate.
What are loan against securities (LAS)?
Loan against securities is a loan where you pledge your shares held in demat account, mutual funds or life insurance policies as collateral to the bank against the loan amount. The securities are pledged with the bank till such time the loan is repaid by you.
How do loans against securities work?
Loan against Securities are typically offered as an overdraft facility in your bank account after you have pledged your securities (shares / mutual funds or life Insurance policies, etc.). You can draw money from the overdraft account whenever required and pay interest only on the loan amount that you have used for the particular period.
Let us understand through an example - You got a loan of Rs 5 Lakhs against your securities and you drew Rs 2 Lakhs for expenses. After 2 months, you deposited back the amount in your bank account. Thus, in this case, you are liable to pay interest only for 2 months on Rs 2 Lakhs (even though the loan sanctioned amount is Rs 5 Lakhs) at the interest rate charged by the bank on the overdraft facility.
The loan eligibility amount depends on the total value of the securities offer by you as a collateral. The total loan amount given by the lending institute or your bank is typically 60-70% of the total security amount.