Importance Of Home Loan Rates In Your Monthly Cash Flow

EMI calculators calculate the EMIs based on three factors; the principal amount, the housing loan interest rate and the loan tenure. Out of these, the home loan rate is the most important one, as it is the only factor that can vary after you have started paying off the EMIs. Whether you have a floating or a fixed home loan rate , it will be based on the RBI rules and regulations, the profit margins and economy variables as well.

Due to the various financial challenges, it is likely for your EMIs to become the biggest deduction from your monthly earnings. This can be hazardous to your financial life for two reasons:

1. You may not have sufficient funds set aside for emergencies due to which you may end up losing your home because of the additional expenses.

2. Any external factor like a raise in the home loan rates in India can affect regular monthly payments such as EMIs, utility bills, grocery purchases and insurance payments. At times, it can imply that you won’t have sufficient savings for any other financial or medical emergencies.

If you understand the impact of the potential growth in home loan rates, you must ensure that your EMIs account for less than 30% of your monthly income. This will help to make certain that any possible increase in the housing loan interest rates can be dealt with easily.

It can be challenging to keep this percentage consistent throughout the term of your loan repayment though. However, it is the most strongly advised course of action. Fundamentally, there are two strategies that can help you get there:

1. You can work towards an increase in salary or your monthly business turnover, to stay ahead of this ratio.

2. You should make significant low-risk-higher-liquidity investments with whatever funds are left after all the expenses.

The most suitable type of investments for this purpose include SIPs in balanced or gold mutual funds, fixed deposits, recurring deposits, and gold and blue chip equities from stock market. These are realistic as they offer the right combination of liquidity and rewards. You can use them if you get into a situation where you can’t depend on your salary or business turnover to pay your EMIs. First time borrowers believe that home loans are about making the repayments by the set date. However, if you ask any financial expert, they would tell you that it’s much more about the financial discipline of setting enough money aside.