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We have tried to enlist some guidelines that you need to consider while borrowing for a house. Generally, you should not borrow above 50% of your take home salary. The other monthly payments such as insurance premium must be deducted while calculating repayment capacity. You also need to consider the tax benefits of home loan and the rate of interest on home loan while deciding how much to borrow.
Ideal Home Loan:
What is an ideal home loan? A Home loan of Rs 16 lakhs @ 10% for 15 years is an ideal position to optimize on tax benefits. EMI comes to Rs 17,194 X 12 = Rs 2,06,328. Out of this, interest payable during the financial year is Rs 1,57,817 and principal repayment is Rs 48,511. In case of joint home loan, the limit of 16 lakhs will be doubled. Interest deduction is allowed to each co-owner to the extent of his/her share. The loan amount also depends on the value of the house you are buying as the banks typically allow only up to 85% of the total cost. You need to remember to take term insurance to cover home loan. One should take life insurance plan to ensure repayment of home loan in the event of untimely death. Generally, banks include insurance premium in your EMI, which makes it convenient to pay. So even if you are not around to pay off the instalments, your family will never have to be without a home. Term plan is mostly cheaper and advisable than mortgage insurance. Term Plan continues even if you pre-pay the home loan whereas mortgage insurance reduces the risk cover every year.
