Tips for Making a Housing Loan Down Payment
Which aspect do you think is most vital while buying your dream home? Undoubtedly, it is the method of financing a housing loan. The way you fund has long-run effects on your financial health and may not necessarily be the same for people looking to buy a property. For instance, a wealthy person can self-finance whereas a salaried cannot. But, a majority of home buyers rely on bank funding. ICICI Home Loan is one of the best Home Loan for borrowers who are willing to take with easy processing, lower EMI and affordable interest rate. Choosing the best financing option is as good as building an investment portfolio.
Fixed and Variable Interest Loans
A housing loan is offered in two ways: 1) a loan with a fixed interest rate and 2) a loan with a flexible interest rate. As its name indicates, the interest rate shall be fixed in a fixed-rate mortgage that can be refinanced whenever you want. Assuming you have taken a fixed-rate mortgage at 10% per year, and the loan tenure is 20 years. You can refinance the loan after 5 years.
Whether or not to refinance the loan depends upon its economic feasibility. If you have chosen a flexible-rate mortgage, you pay timely-adjusted interest rates. An adjustable-rate mortgage loan works better for shorter loan tenures while a fixed-rate loan for longer tenures. Whether you opt a fixed-rate mortgage or a variable rate mortgage, home buyers make down payments. Now the question is how to make down payments.
Do not use lifetime savings
Retirement savings cannot be used, say experts. Making down payment through lifetime savings such as Employee Provident Fund (EPF) or the Public Provident Fund (PPF) is not an ideal option. Retirement savings can be used for emergencies, but making down payments is not an emergency at all. Generally, people use retirement savings to lead a post-retirement life with no financial problems.
Do not use your children’s education funds
Another option you can consider to make down payment is withdrawing from your children’s education funds. It is not a good idea. ‘Even partial withdrawals will put you in trouble,’ says Navin Chandani, Chief Business Development Officer at BankBazaar. You shall be forced to take an education loan if you do not have sufficient funds for your children’s education. ‘Paying multiple EMIs with different interest rates will overburden your dues,’ he adds.
Avoid using personal loans
No personal loans can be taken to make down payments because of the variation in interest rates. A personal loan is more expensive than a housing loan. The interest rate on a personal loan is between 15-18% per year whereas the interest rate on a home loan is between 9-12% per year. The higher the interest rate, the higher is your EMI. Consider some other ways to make down payments to avoid the burden of paying higher interest rates.
Avoid surrendering insurance plans
A life insurance policy is meant to safeguard your dependents. It is commonly observed that many people surrender insurance policies to make down payments. Experts advise not to surrender your insurance policies but to take a loan against them. ‘Taking a bank loan against an insurance policy is expensive than taking a loan from insurance companies,’ says Naveen Chandani.
