Owning a dream house has become tough

posted under by NSmurthy
The dream house that you have been yearning to buy has become a bit more difficult to get than before. Or, even if you are already paying for one, it just got costlier to service the loan. The reason? The recent hike in interest rates has affected the borrowing ability of the salaried class apart from stretching the repayment tenure for existing borrowers. Here’s how. With a 10.25 per cent interest on housing loans— the rate before the recent increase—an employee with a monthly salary of Rs 50,000 would have Rs 18.5 lakh with a 15-year repayment tenure. For a 20-year tenure, the eligibility would be about Rs 20.5 lakh.
Now, the interest rate being 11 per cent on an average, the employee would get Rs 17.6 lakh for a 15-year period and Rs 19.5 lakh for 20 years. “It’s a fact that there is no quality property available for less than Rs 20 lakh even in a radius of 15-20 km from the city. Moreover, one has to spend an additional Rs 2-4 lakh on getting the minimum interiors done and register the property. So, unless one gets a gross salary of over Rs 65,000 per month, institutions would find it difficult to lend,” said the regional head of a housing finance major.

As a benchmark, home loan companies consider 40 per cent of an employee’s monthly gross salary towards the instalment payment. For instance, if an employee’s gross salary per month is about Rs 50,000, his maximum EMI permissible by the institutions would be Rs 20,000, that too if the employee has no other loan repayments. If he has an existing car loan or a personal loan, the fund available for housing loan repayment would reduce further. Even for existing borrowers, the repayment schedule is going to get stretched significantly.
While the rates have increased by 75 basis points from 10.25 per cent to 11 per cent, a borrower will now pay an additional Rs 16 per Rs 1 lakh of loan towards EMI for a 0.25 percentage point increase. In this case, for a 0.75 percentage point increase, a borrower will pay an additional Rs 48 per Rs 1 lakh towards the EMI. “The stretch in EMIs will hit all the home loan borrowers across the board,” another senior banker said. Having crunched the numbers, now look for a way to increase your salary. Sorry, no suggestions on that!