THE ACTUAL COST OF PURCHASING A PROPERTY WITH THE ASSISTANCE OF A HOME LOAN
The following tips might help you estimate the actual cost of buying a house with a home loan in a rough way:
One of the most important financial goals in life for many people is to acquire a home. Homes are more than just places to live; they help us develop our identity and provide a foundation for the future of our children and grandchildren. Most respondents to BankBazaar’s Aspiration Index 2021 survey rank homeownership as their number one wealth desire, with a score of 90.7 on the “Importance” scale.
According to the survey report, the ‘readiness gap,’ or the difference between the importance and readiness respondents assign to any goal, is above-average at 6.3, indicating that many people still believe they have a long way to go before they can buy a home.
Purchasing a home isn’t cheap, to say the least. The cost of purchasing a home can often be as much as 10-15 times your present yearly household income, if not more, especially if you want to buy a home in a big city with sky-high real estate prices. To fund their home purchase, most people, understandably, use a home loan, which they repay with interest over a period of up to 30 years. There could also be a number of other substantial charges that you will have to cover out of your own pocket. As a result, being aware of these costs while planning something as essential as a home purchase makes a lot of sense. Here are a few ideas to assist you in estimating the actual cost of purchasing a home with the help of a home loan.
DOWN PAYMENT
90% of a home’s worth is usually financed by a home loan, leaving 10% to be paid for out of pocket. Your lender may only approve up to 75 percent of the loan amount if your home loan is more than Rs 75 lakh. The remaining 25 percent must be paid as a down payment. Suppose your home is worth Rs 30 lakh and your down payment requirement is 10% of that amount, which comes out to Rs 3 lakh. However, if your property is worth Rs 1 crore, you may be required to put down 25 percent, or Rs 25 lakh.
HOME LOAN INTEREST
Despite most banks lowering their home loan interest rates to multi-decade lows in recent years, this is normally the largest price associated with homeownership. The lender determines the suitable home loan interest rate based on a number of parameters, including the borrower’s age, gender, income, credit score, property valuation, loan-to-value (LTV) ratio, and so on. As an example, imagine you’re a 30-year-old woman with a credit score of over 800 who wants to buy a house costing Rs 30 lakh. Because your LTV is 90%, your home loan amount is Rs 27 lakh.
A 30-year loan at 6.75 percent p.a. would mean that your monthly payments would be Rs 17,512 for 30 years (assuming a constant interest rate throughout the loan term), resulting in a total interest payment of Rs 36.04 lakh and an overall repayment amount of Rs 63.04 lakh (assuming constant interest rates throughout the loan term). It’s possible that, if the same guy decides to buy a home worth Rs 1 crore, his loan amount will be Rs 75 lakh, and his monthly payments will be Rs 49,897, his total interest amount will be Rs 1.04 crore and his entire repayment amount will come to around Rs 1.8 crore.
A good credit score will help you acquire the best rates, and a strong repayment capability will let you pay back the loan in full on time without jeopardizing other vital financial goals. Part-paying a floating rate house loan is also a good idea, given there are no penalties for doing so.
Charges related to home loans that aren’t included in the above list
Home loan lenders may require additional fees for loan processing, documentation fees, legal opinion fees, and property valuations. As a non-refundable fee, a loan processing fee represents a small percentage of the loan amount. As part of the processing fee, some lenders include documentation, legal opinion, and valuation fee, while others do not.
Charges for the Memorandum of Deposit of the Title Deed (MODT)
During the term of the house loan, the lender owns the title deed to the property until all outstanding debts are paid in full. Lenders impose a fee called a MODT charge for holding the title deed, which typically ranges from 0.1 percent to 0.3 percent of the house loan amount and varies by state. Processing fees, legal opinion fees, and MODT fees are usually less than 1% of the loan amount and are frequently eliminated, capped, or subsidized.
Charges for Stamp Duty and Registration
Every property transaction is subject to stamp duty and registration fees imposed by state governments. These fees vary depending on the property’s location, price, and size, among other things. Stamp duty and registration fees together account for roughly 3% to 6% of the property’s worth. If the property is purchased through a broker, the buyer is responsible for the brokerage and legal fees, which can range from 1% to 2% of the total property value. So, assuming 6% registration and stamp duty and 1% brokerage (for a total of 7%), these costs may be Rs 2.1 lakh for a Rs 30 lakh property and Rs 7 lakh for a Rs 1 crore property.
Finally, prospective homebuyers must plan ahead of time and verify they have sufficient repayment capacity before taking the jump. They should also maintain a credit score of at least 750 during the loan term to avoid paying additional interest. Finally, individuals must carefully consider the affordability of their EMIs in light of other important goals and liabilities, since any lapse could jeopardize their financial situation.
