Purchasing a home of one’s own is one of the most important financial goals someone can have in their life. Because of the high costs involved with it, it is common for a home loan to be used to cover a significant portion of it, more so due to the present low and attractive SBI Home Loan Interest rates being offered. However, many first-time homebuyers are unaware of how investing in mutual fund SIPs can assist you in planning the purchase of your ideal home, both before and after taking out a home loan. Let us explain it in detail.
In order to raise funds for the down payment- Begin investing in mutual funds through systematic investment plans (SIPs).
In case you intend to take an SBI Home Loan within the next 5-7 years, you should begin investing in mutual fund SIPs to build up a corpus to use as a down payment for the loan. SIPs, which are investments made over a medium to a long period of time, take advantage of the force of compounding to help you accumulate the required amount of money. According to the Reserve Bank of India’s standards, banks can lend a maximum loan-to-value ratio (LTV) of 90 percent to a borrower. Typically, you would be asked to pay a down payment of between 10 and 25 percent of the total loan amount as an upfront payment.
Say, for example, you want to buy a house with low and attractive SBI Home Loan Interest rates, and that house would cost Rs.1 crore in the future five years. You would need to accumulate Rs.25 lakhs in order to cover a 25% down payment, assuming that you were compelled to make such a deposit. If the projected returns are 12 percent, an Rs.25 lakhs corpus with a 5-year investment horizon will necessitate a monthly SIP of approximately Rs.30000 if the returns are expected to be 12 percent.
As a result, if you intend to purchase your ideal home within the next 5 years or so, you need to begin investing in SIPs as soon as possible in order to acquire the necessary down payment funds. Once you have saved this amount, you can apply for an SBI Home Loan using online financial marketplaces that allow you to compare numerous lenders and choose the one that is the fittest for your needs.
In order to close your house loan as quickly as possible- SIPs should account for 10-20 percent of your monthly EMIs.
You should consider taking a lengthier SBI Home Loan tenure if you have amassed the required down payment amount through SIP investments. Although longer loan terms result in greater interest payments at applicable SBI Home Loan Interest rates, they also provide the ease of more manageable monthly payments. Because home loans typically entail a large sum of money, which is typically 5-10 times the borrower’s yearly income, the availability of long repayment terms sometimes results in home loans lasting up to 30 years, which consumes a significant portion of a person’s working years. To reduce the length of your home loan tenures from 25-30 years to, say, 15 years, begin accumulating additional funds that will assist you in paying off your home loan sooner, either through prepayment or foreclosure.
In order to accumulate such a corpus, the borrower should begin investing at least 10-20 percent of the monthly EMI amount (from the time of the first EMI itself) in mutual funds through SIPs, which would grow over time and help accumulate a corpus that could be used to prepay the loan, either partially or completely.
Investing through the SIP route for home down payment corpus
Investment through the SIP route for the purpose of building two corpora, one for the down payment and another for prepayment or foreclosure of the SBI Home Loan, would necessitate a head start in the financial planning process. So, the earlier you begin investing through a systematic investment plan, the more time you give your money to increase over time. Furthermore, you would be able to make use of the power of compounding to generate higher profits.
An investing horizon of approximately 5-7 years and 10-15 years, respectively, would be required to fund your down payment and loan foreclosure, according to the corpus. We have already discussed how to go about accumulating these two corpora using systematic investment plans (SIPs). As an investor and home loan borrower, you must make certain that you begin investing for them as soon as feasible and in the most efficient manner possible in order to permit the accumulation of desired corpora.
Direct plans with no commissions are the best option.
Just like selecting the lender with low-interest rates, whether its the SBI Home Loan Interest rates or some other lender’s, is vital to lower the overall interest cost of a home loan, it is important to choose direct plans to increase returns and decrease commission and other costs in mutual fund investments.
Direct plans allow investors to acquire mutual funds directly from the fund houses, as opposed to normal plans, which include the use of intermediaries and the related fees that come with those intermediaries.
Direct plans offer greater returns, higher net asset values (NAVs), and a lower expense ratio than traditional plans. Investors interested in making SIP investments might do so through online financial marketplaces that offer direct programmes. Such portals also aid new investors in making direct plan investments by providing automated advisory services to guide each customer through the process of selecting the most appropriate plans and developing a portfolio of investments. Furthermore, such services can be obtained completely free of charge from such websites as well.
Continue to review your portfolio.
You are not through with your work of building corpus amidst the planning for taking a home loan at low SBI Home Loan Interest rates until you have selected the appropriate mutual funds to use in the construction of your portfolio and begun investing. Because creating a corpus for your dream home requires long-term investing, you should evaluate your portfolio on a regular basis to keep track of the performance of the funds you have selected. If your existing funds have been failing consistently for a number of years (about 2-3 years), have changed fund managers, or have changed their management approach, you may want to consider selling them. When evaluating the performance of your funds, compare it to the performance of the benchmark indexes and other peer funds in the same category. This would allow you to clearly evaluate the performance of your current funds and exit them at the appropriate time, so avoiding any damage or hindrance en route to the building of your corpus.