Don't let finance stop you from buying home

The current market conditions are good for those looking at investing in a house. The property prices have corrected over the last few quarters due to the global economic slowdown. Many good deals are available in the market now. Also, many new housing projects are being launched by developers , targeting middle income buyers. The pricing of these properties is attractive and affordable. In conjunction with better property prices, the availability of housing loans at attractive interest rates makes the investment a good value proposition for those who want to own a home.

Analysts believe there are many factors that indicate a rise in property prices as well as home loan interest rates in the medium to long term. The economic conditions are improving and demand is picking up in the property market which is expected to drive the property rates upwards.

Similarly, higher fiscal deficit, higher demand and higher inflation rate will force the Reserve Bank of India (RBI) to tighten the monetary conditions in the medium term. However, currently, the banks are sitting on a pile of cash and the demand in the retail loan segment is not as much. Many banks are planning to come out with attractive home loan schemes to attract homebuyers during the coming festival season. Therefore, those looking at investing in property should move now for a good deal in both property and home loan.

Due to the effect of globalisation and aggressive marketing in the home loan market, there is a lot of volatility and cyclical trends in interest rates. Analysts believe they will go up in the next few quarters. Therefore, it is important to put some financial planning in place now. Banks do not revise (upwards or downwards) the EMIs immediately when the rates change. Usually, they first look at an increase/decrease in the loan tenure. In case the interest rates go beyond a point where the EMI will not cover the interest portion or the loan tenure goes beyond the retirement age of the borrower, they call for an increase in the EMIs.

Here's how you can build a corpus that can be used to make a part repayment of the loan or fund higher EMIs in specific periods:

Invest in equity based instruments:

Analysts advise investing in equity-based investment instruments to build a corpus over a long term, as equity-based instruments gives positive returns in the long term after factoring in the inflation rate. The global economy is slowly coming out of recession. Therefore, say analysts, the stock markets will remain bullish in the medium to long term.

Those planning to buy a house can look at investing in a systematic investment plan (SIP) of a good equity mutual fund. This will help in creating a corpus over a medium to long term.

Invest in gold:

Investing in gold is another way to build a corpus. The best way to invest in gold is to buy gold exchange-traded funds or pure gold bars. Historically, gold has yielded high returns over a long term and investments in gold do not have much downside risks.

VPF contribution:

The salaried employees can look at depositing some extra money into their provident fund account through voluntary contributions. One can withdraw up to 36 times his monthly salary from the provident fund after completing 10 years of service, to make a repayment on his housing loan. In case of a need, withdrawal of the extra amount contributed as voluntary provident fund can be an option to make a part repayment of the loan and reduce the EMI to manageable levels.

Loan-cum-savings account:

Many banks offer a loan-cum-savings account product. Under this scheme, the borrower can park his additional funds in the savings account and get the benefit of the same interest rate as is being charged on the housing loan. This account is handy in building a corpus where the borrower is not sure of committing a dedicated amount every month.

SOURCE: The Economic Times