NEW DELHI : Buying a house is often the biggest financial commitment you will make. And when you find a home you really like, it is tempting to stretch the budget just a little more.
The problem is that the extra Rs 10 lakh or Rs 20 lakh you borrow doesn’t disappear once you get the keys. It stays with you as a higher EMI, often for the next 15 or 20 years.
That can affect much more than your housing budget.
Suppose a large part of your monthly income is already going towards the home loan. Add school fees, groceries, insurance, utility bills and other regular expenses, and there may be very little left at the end of the month.
You may still be able to pay every bill on time, but saving for anything else becomes difficult.
Retirement is often one of the first things to suffer. When the EMI feels urgent and retirement is 20 years away, it is easy to reduce or stop investments. The same can happen with money meant for your children’s education or other long-term goals.
A big EMI can also make unexpected expenses harder to manage.
A medical bill, major home repair or a few months without a salary can become a much bigger problem when most of your income is already committed. Without enough emergency savings, you may end up using a credit card or taking another loan just to get through the month.
There is also the lifestyle cost that doesn’t always show up when you calculate whether you can “afford” the house.
You may find yourself thinking twice about holidays, eating out or replacing a car because the EMI comes first every month. None of these expenses is essential, but if the loan leaves you feeling financially squeezed for years, the house may be costing you more than the interest shown on your loan statement.
Interest-rate changes can add another complication if you have a floating-rate home loan.
When rates rise, the lender may increase your EMI, extend the loan tenure or use a combination of the two. A longer tenure may feel easier because the monthly EMI does not rise sharply, but you could end up paying interest for many more years.
RBI requires lenders to communicate the impact of interest-rate resets on EMI or tenure. Borrowers with applicable floating-rate EMI-based personal loans must also be given options that include increasing the EMI, extending the tenure or using a combination of both, switching to a fixed rate under the lender’s policy, and making part or full prepayments.
So don’t simply continue paying the same EMI without checking what is happening to your loan.
Look at your loan statement periodically. Check the outstanding principal, current interest rate, EMI and how many instalments are still left. RBI requires lenders to provide quarterly statements containing key information including the principal and interest recovered, EMI amount, number of EMIs left and annualised interest rate.
If your income has risen since you took the loan, you may have more room to increase the EMI or make occasional prepayments. Even reducing the loan gradually can free up money later for other goals.
But don’t throw every spare rupee at the home loan either.
If prepaying the loan means you have no emergency fund or stop investing for retirement, you may simply be replacing one financial problem with another. Your home is an important asset, but you still need money outside it.
The real question isn’t simply whether the bank is willing to give you a large home loan. It is whether you can comfortably live with the EMI for years.
A house should give you financial security. If paying for it leaves you constantly short of money for everything else, you may have stretched the budget too far.
