The Evolution of Housing Finance and some questions for you to think about
A real estate blog is incomplete without posts on housing finance once in a while. We are doing our bit towards that right now. One of the biggest reasons for the construction boom through the last decade is the home loan. In the Eighties, when our dads were buying homes, the term 'home loan' did not exist in the common man's dictionary. It was only in the late Eighties and early Nineties that housing finance came into the mainstream and the common man suddenly started understanding the potential of such a financial product.
However, in 1993, when someone approached the neighbourhood housing finance guys, this is what he would have gone through;
The mind set those days was different. People were afraid of the word loan, especially when the amount borrowed climbed into astronomical figures going by the standards prevailing then. Just 20 years ago, a hundred thousand Rupees was BIG money. Today, a decent 3 BHK apartment in a reputed builder's residential project in Gurgaon will set you back by Rupees 2 Crores! Funny thing is, in just 20 years, the fear of the word LOAN has diminished to such a great extent that even a one and a half crore home loan doesn't seem like a very big deal.
In another 10 years from now, the housing finance industry would have evolved to such a level that getting a home loan will be a breeze. This is how we picture a home loan application and approval scenario in 2023;
You could say that we overdid that one but that is where things are generally headed. And why not? As more and more offices and government departments go digital, credit checks and home loan approvals will consume lesser time and even lesser paper. From home buyers to investors and from builders to re sellers, availability of quick and easy credit is always good news.
But with so much good news around, home buyers tend to get a little jumpy. If you are buying a property and are unsure about how much money to borrow to finance your home ownership, ask yourself these questions.
#1. A home loan involves a lot of money and I have to repay that loan over a period of 20 years. Am I sure that I want to do this right now? Is my new home an asset or a liability - another post on this blog should point you in the right direction.
#2. Interest rates on the home finance could go up if I choose a floating rate plan. It could also come down. Flipping between fixed and floating rates is generally not allowed. We would recommend floating rates. They could pinch you a bit in short runs but should save you a lot of money overall.
#3. Jobs, salary grades and promotions are very uncertain things these days. A lot of good and efficient people get fired as well. And sometimes, it can take months or even years to get a job like the last one. Will I be able to afford that home loan EMI for a few months without a job?
#4. In the unfortunate event of something happening to me, will my family still have that home? Yes. There is insurance to take care of that. And we absolutely insist that you get that covered even if it is not mandatory for your home loan. Our lifestyles are deteriorating faster than we realize, bringing down healthy life expectancy as well.
#5. Will I be happy living in such an expensive house? Am I stretching myself too much? There could be unforeseen events. I could realize I am passionate about something else. I might want to start my own venture. Will my home loan EMI commitment squash my long term plans and shackle me?
There could be more questions but these should help you get the drift. Life is meant to be lived, enjoyed and cherished. Your own home is certainly a right step in that direction. Choose wisely and remember to take it easy.
Cheers!
However, in 1993, when someone approached the neighbourhood housing finance guys, this is what he would have gone through;
The mind set those days was different. People were afraid of the word loan, especially when the amount borrowed climbed into astronomical figures going by the standards prevailing then. Just 20 years ago, a hundred thousand Rupees was BIG money. Today, a decent 3 BHK apartment in a reputed builder's residential project in Gurgaon will set you back by Rupees 2 Crores! Funny thing is, in just 20 years, the fear of the word LOAN has diminished to such a great extent that even a one and a half crore home loan doesn't seem like a very big deal.
In another 10 years from now, the housing finance industry would have evolved to such a level that getting a home loan will be a breeze. This is how we picture a home loan application and approval scenario in 2023;
You could say that we overdid that one but that is where things are generally headed. And why not? As more and more offices and government departments go digital, credit checks and home loan approvals will consume lesser time and even lesser paper. From home buyers to investors and from builders to re sellers, availability of quick and easy credit is always good news.
But with so much good news around, home buyers tend to get a little jumpy. If you are buying a property and are unsure about how much money to borrow to finance your home ownership, ask yourself these questions.
#1. A home loan involves a lot of money and I have to repay that loan over a period of 20 years. Am I sure that I want to do this right now? Is my new home an asset or a liability - another post on this blog should point you in the right direction.
#2. Interest rates on the home finance could go up if I choose a floating rate plan. It could also come down. Flipping between fixed and floating rates is generally not allowed. We would recommend floating rates. They could pinch you a bit in short runs but should save you a lot of money overall.
#3. Jobs, salary grades and promotions are very uncertain things these days. A lot of good and efficient people get fired as well. And sometimes, it can take months or even years to get a job like the last one. Will I be able to afford that home loan EMI for a few months without a job?
#4. In the unfortunate event of something happening to me, will my family still have that home? Yes. There is insurance to take care of that. And we absolutely insist that you get that covered even if it is not mandatory for your home loan. Our lifestyles are deteriorating faster than we realize, bringing down healthy life expectancy as well.
#5. Will I be happy living in such an expensive house? Am I stretching myself too much? There could be unforeseen events. I could realize I am passionate about something else. I might want to start my own venture. Will my home loan EMI commitment squash my long term plans and shackle me?
There could be more questions but these should help you get the drift. Life is meant to be lived, enjoyed and cherished. Your own home is certainly a right step in that direction. Choose wisely and remember to take it easy.
Cheers!
PETRON GROUP LLP is a Global private Equity Firm that invests in private equity, debt, infrastructure, Renewable Resources. The firm manages a broad range of investment programs for Institutional Investors such as family offices, endowments, funds of funds, ultra high net worth investors that want principle protected returns.
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