Everyone dreams of having their own house. Housing prices are so high that most people have to take out loans to buy a home. But banks lend you up to 75-90% of your purchase amount. You have to pay the remaining amount from your own pocket. This is also known as down-payment.
Suppose you buy a house worth Rs 30 lakh, in that case the bank will not lend you more than Rs 27 lakh. You have to pay the remaining Rs 3 lakh.
If you had invested wisely, you would have saved this money. But if you haven’t, you have a few options:
- You can borrow from your family member or friend for some time.
- You can borrow from your employer.
- Gold loan, Property loanCan borrow from each other etc.
- Provident Fund can borrow from
- If you have any investments, you can collect money by selling them.
But you don’t have this option, so what do you do?
One more option remains.
You have a personal loan option. Personal loans are unsecured loans and you don’t need to provide any security. Personal loans are also easily available.
But should you take a personal loan for home loan down payment?
Let’s consider a few things.
- If you take a personal loan, you have to repay two loans. First is home loan and second is personal loan. You have to see if you can pay off both the loans.
- Your maximum home loan limit depends on two things. The value of the home and your ability to repay the loan, if the limit is due to the cost of the home (and your repayment capacity is high), you may have to pay for two loans. Example: You can repay a loan of Rs 50 lakh, but since the house is worth Rs 30 lakh, you cannot get a loan of more than Rs 27 lakh. Here personal loan will not bother you much.
- But if your ability to repay the loan is low. Suppose the house is worth Rs 40 lakh, but your loan repayment capacity is only Rs 30 lakh. In such a situation, the bank will not give you a loan of more than Rs 30 lakh. Now, if you take a personal loan of Rs 5 to 10 lakh, how will you repay it? Many problems can arise in such a situation.
- Interest rates on personal loans are also very high. This will increase the EMI of the personal loan.
- If you take a personal loan for home down payment, you also get some tax benefits on its payment. A tax benefit of up to Rs 2 lakh is available under Section 24 for payment of interest. There is no tax benefit available for repayment of principal.
What should we do?
In my opinion, avoid taking personal loans for home loan down-payment. You may find it difficult to pay the loan EMI. Your monthly budget will also be affected.
Not only personal loans but many other types of loans as I have discussed above. Like gold loan, property loan etc. This loan also has to be paid.
If you’re thinking of buying a home, start saving for a down payment now. You can withdraw some money every month and keep it in fixed deposits, recurring deposits and liquid funds.
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