Caveat – I never recommend anybody to take debt upon themselves for the simple reason that the one who has taken debt upon himself has an obligation for the other who has given it. And obligation, I feel is not freedom.
Now for the topic…How did I take and paid off my home loan.
Factors taken into consideration for fixing the amount of loan to be taken:
- whether it can be repaid by me within a shortest possible time.(In my mind, I had fixed the target period for repayment within 5 years)
- the EMI(Equated Monthly Installments) amount which will be comfortable for me to be paid each month(depending on the take home pay and other expenses including provisioning for unforeseen expenses).
- The total interest payable(alongwith other charges)-fixed/floating rate of interest. I did not bother much about the rates, as I did not want to waste my time & energy. I had only wanted the process of sanction and payment to be swifter. I did not expect any other things like, the passing of the benefits to the customers as and when the announcement of rate cut, if any, by RBI, etc.
- The amount of loan to be taken to be the least possible and only for my necessity.
What I actually did:
Loan taken – Rs.18 lakhs, EMI – Rs.25,000/- approx per month, Duration – 10 years
- Selected a longer duration for repayment, so as to keep the EMI at a lower level, which can be paid comfortably without too much of tightening myself.
- I had to keep a constant pressure on the builder for completing the construction of my house. Even though initially he had told that he would complete it within 4 to 6 months, in my mind, I had given a time period of 10 months for completion. It was finally finished in 10 months.
- I had wanted to complete the construction of the house within that financial year itself, so that the repayment towards principal and interest could be fully utilized for Income Tax purposes and also to keep the filing process simple. I used the principal repayment in section 80C deduction and interest repayment in section 24 for reducing my outgo of income tax.
- The loan was disbursed in 6 parts as per the stages of construction of the house. Since, this post is for showing some of the intricacies in taking and repaying a home loan, I have not gone into too specifics and have posted the overall picture.
- Made bulk repayments of principal, every 6 months or in a year, depending upon my savings. During this period, I had made conscious efforts to save more. However, I did not set any target for savings. As the Interest component of EMI is higher and the Principal component is lower in the initial years, I made sure that I repay the maximum Principal in the earlier years.
- As I had already set my mind to fully repay the loan within a period of 5 years, it could be done without much effort.
P.S.: Even though we live at the heart of Chennai city, I had taken housing loan only after we came to know the effects of good vastu and decided to build a new house as per the principles of vastu.