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Capital Trade

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| Source: Moneycontrol.com

Buying your first home? Here’s how to plan your investment smartly

If you plan and invest your money smartly, then you can easily arrange the required funds to buy your first home.

Adhil Shetty

Buying your first home comes with big financial responsibilities as it involves arranging of funds. Home loan provides support to first time buyers to fulfill their dreams. Even if you avail a loan to buy your first home, you still have to arrange the down payment which constitutes a substantial amount. Suppose you want to buy your first home and the property that you have chosen is worth Rs 50 lakh. Banks usually allow a loan up to 65 to 85 percent of the value of the property. In this example, if the bank gives you a loan of 80 percent of total property value, you still have to arrange 20 percent from your own sources, i.e. you would require Rs 10 lakh (20 percent of Rs 50 lakh) as a margin money to buy your first home. The bank starts loan disbursement only once your portion of payment is completely paid.

If you plan and invest your money smartly, then you can easily arrange the required funds to buy your first home. We’ll help you explore some attractive investment options for arranging the funds to buy your first home.

Start early

Investing early in your career is vital to get the desired corpus within right time. It’ll help you plan home buying at an early age. If you apply for a home loan in the 20s or early 30s, then banks can allow you a loan tenure of up to 30 years, hence it will reduce your immediate EMI load. Also, the power of compounding return will get more time to work on your investment and you can build a corpus very quickly without taking unnecessary risk.

Invest in mutual fund SIPs to arrange the down payment money

Mutual fund SIP allows you to invest money regularly for a long term. You can start a SIP specifically to make payment for your home loan down payment. You can easily get a return of 10 to 18 percent, depending on the type of fund you select and tenure of investment. Suppose, if you invest Rs 10,000 per month in equity mutual fund SIP and the fund gives you a return of 16 percent per year, then in five years you’ll be able to build a corpus of Rs 9.2 lakh.

Invest for your future EMIs

Apart from saving for the down payment, you should stay ready to pay the EMIs after you purchase the home. Banks are now a days charging an interest of around 8.3 to 8.5 percent p.a. If you invest money in mutual fund for long term, then it can easily give you a return of more than 10 percent (beware of risk; return is subject to market condition). So, you should take a loan of longer duration to keep the EMI lower than your exact repayment capacity and invest the extra amount to earn greater return. Use such corpus that you build by paying an extra amount to repay the loan earlier than its actual tenure.

For example, you availed a loan of Rs 40 lakh. Though you can repay the EMI considering 20 years tenure, but you opted to keep the tenure to be 25 years and reduce the EMI to that extent. Now, you invested the difference amount in the mutual fund SIP and used the corpus to clear the loan in the future. Let’s understand this example with the help of table as mentioned below:

adhil1

Note- Always consult your financial advisor and do your own due diligence before selecting the loan and investment instrument

Use the PMAY- CLSS benefit

Under Pradhan Mantri Awas Yojna, if you or your family member do not have a home anywhere in the country, then you are eligible to get the benefit of PMAY- CLSS scheme. Under this scheme if you apply for a home loan, then you are entitled to get upfront interest subsidy from the government, and such subsidy amount can significantly reduce your EMI burden. For medium income group the CLSS scheme is explained in the mentioned below:

adhil2

Here it is important to note that you are still eligible to get the CLSS benefit if your parents own a home. Loan over and above the specified limit is not considered for calculating the subsidy benefit.

If you do not own a home, then this is an appropriate time to buy one because the interest rate is low, and you can also get the benefit of PMAY- CLSS scheme.

(The Writer is CEO, BankBazaar.com)
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