Take a housing loan early in your life as it leads to early closure also, says Balaji Rao
Ravi was dejected when he confessed that he wasted almost five years of his earning life without planning for owning a house. His parents have been looking for a bride for him and almost three of the proposals had been rejected for the fact that he lived in a rented house and not his own house.
Owning a house and living in it is a dream everyone fervently pursues. Though everyone may not be able to afford to live in an own house, efforts towards this end are essential.
When should one start investing for a house and how much is required to afford one? A two-bedroom flat would cost around Rs.50 lakh in the midrange of affordable housing. For such a cost an investment of 20 per cent would be essential as part of the down payment requirement to get a home loan. This would be Rs.10 lakh, the rest would be funded by the bank/HFI.
If an individual starts working at the age of 24 or 25 years then it would be ideal to start building the down payment corpus immediately upon earning. A monthly investment of approx. Rs.10,000 to Rs.12,000 would be needed to create such a corpus over five years, assuming the investments are done in such opportunities that can yield annualised returns in the range of 12 to 15 per cent. Yes, it would be big time savings and investment plan, but a house is the safest and most trustworthy investment whose value grows over the years which even helps in a decent monthly return by way of “reverse mortgage” during old age.
Taking the loan early leads to early closure of loan, maybe in the mid-40s itself, which allows planning financially for other events of life. Prudence would be to start building the down payment corpus at least three to four years before marriage. After marriage the spouse can be made as a co-borrower, if working, and the couple can get a joint loan for the house.
A 20-year loan, if planned properly, can be closed in 15 years and by 45 years of age the biggest responsibility would be off the shoulder and the rest of the events of life would happen smoothly.
The key for such successful planning is to start at 24 or 25 years rather than at or after 30 years. Since the prices of construction and the ancillary expenses would always rise it would help in saving a lot of inflation-related costs as well. A 15 to 20 per cent overall savings, if started early, may not be ruled out.
Start early, invest wisely and own a house when young; besides it also helps in not getting rejected by a prospective bride.