Why your salary is losing the race against home prices
Published by India Today
Abhishek Kumar's role: Quoted
Abhishek Kumar said a home loan EMI should ideally stay within a third of gross monthly income, and cautioned that many buyers confuse loan eligibility with affordability and drain liquid savings for down payments.
What Abhishek Kumar said
What share of my income should a home loan EMI take?
I suggest keeping the home loan EMI to no more than one-third of your gross monthly income. Staying within that limit keeps your monthly cash flow flexible, so you can absorb a change in floating interest rates or an unexpected expense. Many buyers go well past this ratio to buy premium homes, and the bigger loans that rising prices push them into leave them more exposed to rate increases or a break in income.
What happens to a family's savings when buyers stretch for a down payment?
Many families drain their liquid reserves to put together a large down payment and to keep up with rising EMIs. They stop their mutual fund contributions and divert money that was meant for retirement. Swapping liquid financial assets for a single illiquid property weakens the family's safety net and pushes back their long-term wealth creation.
What do buyers overlook when judging how much home they can afford?
The biggest error is treating the maximum loan a bank will give you as your personal affordability. That ignores the running costs of owning a home, such as maintenance, taxes and lifestyle inflation. Buyers also rarely stress test their budget against future rate hikes on a floating-rate loan, which can raise the EMI considerably and put the household under strain.
When can renting make more sense than buying a home?
In metros where prices have risen sharply, renting can be a sensible choice for many households. When you rent, you do not have to lock up large sums upfront in stamp duty and a down payment. That liquid money can instead go into financial assets such as equities, and you keep the freedom to move for your career.
In our words, from what he said in the piece. General information, not personal advice.
More of Abhishek's views on money management
India Today examines why home prices in many Indian cities have risen faster than salaries. Using PropEquity data and stories of buyers in Gurgaon and a Tier-II city, it looks at price-to-income ratios, heavy EMIs, reliance on family money and the rent-versus-buy question.
Publisher source
Why your salary is losing the race against home prices