I was having a conversation with my friend cum colleague about how he has booked a 3 BHK for $150K for a family of 2 in that he is planning to take a Home loan for $120K which is huge considering the recession, job loss as well as the returns in the longer run. Looking at the above example, in this world which runs mainly on credit, one can buy anything with credit, the only catch is you have to show an income to support it.
With this affordability, a lot of young earners buy a home at a very early age, because of credit, salary hikes etc. But this doesn't mean that we should park all our savings as well as almost all our monthly budget to an EMIs. The builders and the bank want to sell a larger amount to you because it's a profit for them but can be a loss for you in the future. When I asked them the same thing to my friend, his argument was -
- The salaries will not remain static and they will increase with promotions and other things and in the future pressure will reduce.
- They want a bigger house because they do not want to live in a small house and since this is their first home investment, it should be big and better.
- They will cut costs, and reduce expenses for reducing the pressure of EMIs.
These are well-thought-of answers and it works for most of the people out there, mainly salary hike, with promotions and other things people can easily get up to a 30% hike and which will actually reduce the pressure of EMIs. But there are some problems with this approach also,
- You are not 100% sure what will happen in the future, like in 2022 and 2023 we have so many layoffs means the salary will reduce to 0 or the reduced hikes will make them suffer for longer.
- When the family becomes bigger it will again burden the monthly budget or they might not able to start a family themselves. But it's their choice and it really doesn't matter much with smaller or bigger homes.
- More Tension - This is one of the worst among the others, people will have stress constantly because of that EMI burden on them. I once had an EMI, not much just 20% of my monthly income, still, I wanted to close it as soon as possible because I do not want to take that stress with EMIs.
I am not against taking Home Loans, I too have taken and will take them in the future too, but having High EMIs just for the sake of a bigger house is not good in any circumstances. They can buy 2 BHK or 3 BHK a little far from the city which can actually reduce a lot of their EMIs burden.
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