Purchasing a home requires careful decision making and financial planning as random decisions can lead to painful consequences. Since most people are not able to afford a complete payment of their house from their savings, they need to take a loan, which is then slowly paid back in installments. These installments are one of the most important factors to be worked out and you can use an automatic online home loan EMI calculator excel or manual formula for the same.
When you purchase a home, it is a big achievement in your life. To enjoy it thoroughly, it is important that you understand what is involved in the process. With this thought, the following pointers have been listed to guide you through the financial aspects that you would need to consider for a successful and fruitful purchase:
Start Saving up
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Buying a home needs money for payments, which could differ based on the type of home and the status of construction. A ready-to-move home will require a lump sum to be paid up front, while an under-construction home will have payments in slabs. It will also vary by your payment plan. You can choose to save enough money for a home or you can make part payment from your savings and take a loan for the rest. In either case, the first step is to save some money.
Understand What You Can Afford
When you have some money saved up and have a steady income flow, it is the right time to start planning the purchase. You will have to chalk out how much money can you shell out upfront and how much would you be able to take out monthly without affecting the regular household expenses. These will determine your down payment and EMI capability. A loan EMI calculator will give you an idea of the kind of loan you can afford with the current rates of interest prevalent in the market.
The Several Ways in Which You Can Fund Your Home
Here are a few ways in which you can fund your home:
1. You have the option of putting in all your surplus savings in a house. This is not high on a recommendation list as you would be left with nothing for an emergency.
2. The second option is withdrawing any PF that you might have accumulated. You are eligible to use up to 90% of your PF to make a down payment for a house. For the rest, you can take a loan.
3. The third option is to use some of your surplus savings and take a loan for the rest. You can then use the PF towards paying the home loan EMIs, if required.
In all the above cases, use a home loan calculator excel to work out the loan that you can take and the EMIs you can afford.
Taking a Loan
When taking a loan, you must study the market well. Look for the rate of interest applicable to the housing loan from various lenders. Look for the best offers. Many times, the banks would have tied up with the builders, which can get you a good rate. Choose the lowest interest rate available.
Remember that this loan rate will depend upon the amount of loan that you want and your financial standing i.e. your credit score. Use a housing loan interest rate calculator to get a fair idea of your eligibility and loan available to you.
Tax Benefits of Taking a Loan
Taking a loan has many benefits for a taxpayer. You can claim deductions on the principal repayment (up to 1.5 lakhs), the interest that you have paid on the loan (Up to 2 lakhs) as well as on registration and stamp duty (up to 1.5 lakhs). You can claim these after the construction is over. If the construction takes longer than 5 years after sanctioning the loan, the deduction limits get reduced.
For a first-time purchase of property, you can claim a deduction of a total of INR 50,000 per year till the repayment of the loan is complete. For a precise calculation of the tax benefits, you can use the home loan tax benefit calculator.
How Much Loan Should You Take?
As per law, you can get up to 90% of the property value as a loan, which basically leaves you to arrange for the balance 10% as down payment. As per experts, one should avoid going for such high loan and must save enough to make a down payment of 30-40%. Advance planning and saving for a home should be done for 3-5 years before you can actually buy the house.
How Much EMI Can You Pay?
As mentioned earlier, the down payment and EMI affordability are the two key factors to consider when taking a loan. You will first need to understand how to calculate home loan EMI to be able to get clarity on what exactly you are paying as interest. The EMIs should not overburden your monthly household budget and should be an amount that you can comfortably pay every month. To calculate the EMI, you can use loan EMI calculator excel or manual formula.
You need to enter the Principal, rate of interest and tenure in the calculator for the EMI. In Excel, the function PMT gives you the result once you input the same three variables, but the rate should be monthly and tenure becomes a number of installments. For manual calculation, the formula given below can be used:
How Much Interest Are You Actually Paying?
In the EMI, you have a portion of the principal and a portion of interest that you pay. These are not equally distributed through the tenure but vary every month. You pay a larger interest component in the beginning and as you approach the end of the tenure, you pay a larger principal component. An amortization table gives you the breakup of the two. This is important in choosing the tenure of the loan; a longer tenure means smaller EMIs, but the interest component is much larger. And the tax deductions do have a limit. So, be careful when deciding the terms of the loan.
Hopefully, the above points will prove helpful for the purchase of your home.