Fund your home with a combo deal
There are several instances where a person may miss out on a dream home because of a slightly lower income level denies them access to the necessary finance. In the current scenario, where home loan rates have been headed steadily north thanks to the RBI's repo rate rises, the likelihood of this happening is even more so.
Double impact
Here's how it works. Most of us know that an increase in home loan interest rates means having to pay a higher EMI. But were you aware that the rise affects your home loan eligibility as well? While this fact may not register immediately, it's really quite simple when you consider it step by step.
The interest home loan rate goes up; therefore, your total repayment amount also increases to that extent. And since the only thing in the equation that hasn't gone up is your income... your repayment capacity, based on which they calculate the eligibility amount, comes down slightly.
Interest implications
Let us understand how this works with a hypothetical example. If you have a monthly salary of Rs. 18,000 and decide to opt for a 15-year fixed rate home loan at an interest rate of 8.5 per cent, calculated on annual rest basis, you would be eligible for a loan of about Rs. 8,07,000 with an EMI of Rs. 8,098.
However, if the interest rate increased by just 0.5 per cent to 9 per cent, your eligibility would reduce to Rs. 7,89,000 for the 15-year tenure loan, while the EMI would rise marginally to Rs. 8,157.
For a 20-year tenure loan, the eligibility would come down by Rs. 25,000 to Rs. Rs. 9,30,000 and the EMI rise would be small with the amount going up to Rs. 8,490.
Club incomes
But don't worry; there are ways of getting around such problems. What you can do, is club the income of your spouse to increase the repayment capacity. In fact, the easy availability of home loans has clearly contributed to the growing trend of couples opting to buy their own flat at a much younger age.
Increase eligibility
Having a co-applicant can help you to cope with the factor of rising home loan rates. If you have a monthly salary of Rs. 18,000 and decide to opt for a 15-year fixed rate home loan at an interest rate of 8.5 per cent, calculated on annual rest basis, you would be eligible for a loan of about Rs. 8,07,000 with an EMI of Rs. 8,098. Add your spouse's monthly salary Rs. 7,000 to the equation and your eligibility rises to Rs. 11,11,000!
Similarly, with just your own salary of Rs. 18,000, you could enhance your eligibility amount to Rs. 9,55,000 by opting for a 20-year tenure instead. However, clubbing your spouses Rs. 7,000 salary in your application would further enhance your eligibility to Rs. 12,93,000!
Sanctioning norms
The actual home loan amount sanctioned by a lending institution is determined after taking into account factors like repayment capacity, age, educational qualifications, stability and continuity of income, number of dependents, co-applicant's income, assets, liabilities, saving habits, etc.
A joint application would probably enable you to maintain the same level of eligibility even if the home loan rate increases by a few basis points.
Options available
The question that arises whenever home loan rates rise is, what's the better home loan option, fixed or floating rates? Every home seeker opts for a floating rate loan when home loan interest rates are on the decline, to take advantage of the reduction. However, when home loan rates appear to have stabilised and there appears to be a likelihood of their rising again during the forthcoming year, the dilemma facing new flat buyers is whether they should take a fixed rate loan or opt for the floating rate option.
Rate variance
Since year 2010 began, there has been a gradual rise in home loan interest rates. While floating rate customers have started getting concerned about the higher monthly repayments and/ or increased tenures, the thing to keep in mind is that it's better to go in of floating interest rates as they are comparatively cheaper than fixed loan component. For starters, there will always be an interest rate difference of one or two per cent between the fixed and floating home loan options.
Tenure matters
Moreover, since loan tenures are typically in the range of 15 years or so, interest rate cycles tend to even out over that period, so there is no need to panic and run for the fixed rate option unless if you are taking a short-term loan of just five years.
There are several instances where a person may miss out on a dream home because of a slightly lower income level denies them access to the necessary finance. In the current scenario, where home loan rates have been headed steadily north thanks to the RBI's repo rate rises, the likelihood of this happening is even more so.
Double impact
Here's how it works. Most of us know that an increase in home loan interest rates means having to pay a higher EMI. But were you aware that the rise affects your home loan eligibility as well? While this fact may not register immediately, it's really quite simple when you consider it step by step.
The interest home loan rate goes up; therefore, your total repayment amount also increases to that extent. And since the only thing in the equation that hasn't gone up is your income... your repayment capacity, based on which they calculate the eligibility amount, comes down slightly.
Interest implications
Let us understand how this works with a hypothetical example. If you have a monthly salary of Rs. 18,000 and decide to opt for a 15-year fixed rate home loan at an interest rate of 8.5 per cent, calculated on annual rest basis, you would be eligible for a loan of about Rs. 8,07,000 with an EMI of Rs. 8,098.
However, if the interest rate increased by just 0.5 per cent to 9 per cent, your eligibility would reduce to Rs. 7,89,000 for the 15-year tenure loan, while the EMI would rise marginally to Rs. 8,157.
For a 20-year tenure loan, the eligibility would come down by Rs. 25,000 to Rs. Rs. 9,30,000 and the EMI rise would be small with the amount going up to Rs. 8,490.
Club incomes
But don't worry; there are ways of getting around such problems. What you can do, is club the income of your spouse to increase the repayment capacity. In fact, the easy availability of home loans has clearly contributed to the growing trend of couples opting to buy their own flat at a much younger age.
Increase eligibility
Having a co-applicant can help you to cope with the factor of rising home loan rates. If you have a monthly salary of Rs. 18,000 and decide to opt for a 15-year fixed rate home loan at an interest rate of 8.5 per cent, calculated on annual rest basis, you would be eligible for a loan of about Rs. 8,07,000 with an EMI of Rs. 8,098. Add your spouse's monthly salary Rs. 7,000 to the equation and your eligibility rises to Rs. 11,11,000!
Similarly, with just your own salary of Rs. 18,000, you could enhance your eligibility amount to Rs. 9,55,000 by opting for a 20-year tenure instead. However, clubbing your spouses Rs. 7,000 salary in your application would further enhance your eligibility to Rs. 12,93,000!
Sanctioning norms
The actual home loan amount sanctioned by a lending institution is determined after taking into account factors like repayment capacity, age, educational qualifications, stability and continuity of income, number of dependents, co-applicant's income, assets, liabilities, saving habits, etc.
A joint application would probably enable you to maintain the same level of eligibility even if the home loan rate increases by a few basis points.
Options available
The question that arises whenever home loan rates rise is, what's the better home loan option, fixed or floating rates? Every home seeker opts for a floating rate loan when home loan interest rates are on the decline, to take advantage of the reduction. However, when home loan rates appear to have stabilised and there appears to be a likelihood of their rising again during the forthcoming year, the dilemma facing new flat buyers is whether they should take a fixed rate loan or opt for the floating rate option.
Rate variance
Since year 2010 began, there has been a gradual rise in home loan interest rates. While floating rate customers have started getting concerned about the higher monthly repayments and/ or increased tenures, the thing to keep in mind is that it's better to go in of floating interest rates as they are comparatively cheaper than fixed loan component. For starters, there will always be an interest rate difference of one or two per cent between the fixed and floating home loan options.
Tenure matters
Moreover, since loan tenures are typically in the range of 15 years or so, interest rate cycles tend to even out over that period, so there is no need to panic and run for the fixed rate option unless if you are taking a short-term loan of just five years.
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