“You don’t want to have so much money going towards your mortgage every month that you can’t enjoy life or take care of your other financial responsibilities.”
– Dave Ramsey
There was a post on education loan sometime back, this is the second installment of the same series. In this post let us talk about home loans. Home loans or for that matter any loan will slow down the pace of building your net worth considerably. I would always suggest go for home loan only when it is necessary.
Food for taught – “Build your dream home only when you have the cash upfront. Don’t go for 35/45/55 lac loan unless you earn in lac every month”
Say you are 30 years old, you go for home loan of 35 lac. Down payment of 15 lac(70% of all your earning so far accounts as down payment to the builders). The repayment of the loan amount takes place in 20 years time (say 30,000/- every month). When you are 50 years old after all your repayments you end with non liquid asset of may be 1 or 1.5 crore.
Between if you had paid rent of 18,000/- every month for 20 years and the remaining 20,000/- ( 12,000 + remember 15 lac down payment amount, use 8,000/- from down payment money) of the corpus goes into recurring deposit or SIP for 20 years you would end up with (min) 1.35 crore liquid cash readily available.
If you are buying your house using loan amount and spend next 20 odd years repaying the loan amount and finally end up with a non liquid asset, why not stay at rented place for 20 years and earn on compound interest with rest of the bread? Well that being said, life takes us through the path which we cannot predict. Always there are if’s and but’s, so end of the day home loan is good option for those in need. Be sure of one thing though, your net worth will be hampered like never before. These loans are built to kill your net worth. If you are earning less than or equal to 50,000/- and you opt for home loan then I have a quote – “Better forget about getting rich, you will definitely die trying”
Before you all point gun at me, there are always exceptions. And the above calculation are just examples. And I would not go for home loan instead stay in rented house. The whole article talks about one important thing, what is your earning every month? Well this is one of the important criteria in deciding whether to go for home loan or not. I was reading this article and found out one interesting comment which I would like to share “All debts are bad, there are levels of badness, but calling it good is merely a rationalization sold by banks and lenders to make you feel good about going into debt”
Feel free to share your thoughts on home loan. I would love to hear from you. Cheers!