The Hindu Business Line : When DINKs take a home loan

For the average home loan applicant, increase in interest rates and tenure would seem to be the principal worries in these troubled times. These are ‘economically challenging times’ to live in, and this holds true for those all over the world.

Globally, serious economic issues are being faced and, logically, home loan takers need to keep fiscal prudence in mind.

In India, as various issues impact our economy too, we have come to a situation where the home finance industry has to be a friend, philosopher and guide to the existing customers as also those who want to buy a home with a loan.

The basic thing home loan seekers need to keep in mind is that the finance sector always follows a cycle.

So, if right now you have a scenario of high interest rates, it followed a time when you had lower rates — and, there will be a time in the not-so-distant future when the interest rates will come down.

Think long term

So, when you opt for a home loan, think long term and keep in mind that things will get better. Having said that, I come to an issue that I feel strongly about: Do home loan seekers over-extend themselves?

Let me take the example of a working couple who did not have children at the time of applying for the loan — what is referred to as DINKs (double income no kids) segment.

When people in this segment opt to buy a home with a loan, two incomes are clubbed together, so the eligibility is higher.

Invariably, this results in a scenario where the couple opts for a home in a ‘premium location’ where a home is ‘expensive’ compared to an ‘average home’. Second, they end up buying a bigger home based on the projected future requirements.

An eye on the future

Problems related to home loan repayment begin when the family becomes bigger. At this stage, expenses go up; one income either reduces drastically or just stops.

This is the reason why, when a DINKs couple take a home loan, they should do so with an eye on the future.

For the average home loan seeker, there are three steps to ensure they will not face challenging times in the future.

To begin with, try to take a home loan for only the amount that is actually required, so that the repayment amount is kept under control.

Personal loans should be avoided as far as possible, because the interest rates are considerably higher than that for home loans.

The next step is to calculate how many years you have before other expenses mount, and try to pre-pay as large a sum as finances permit.

Other expenses can be a marriage in the family, major medical expenses or in case of a DINKs couple, a child.

For a DINKs family, if they can plan to repay the home loan within a five-year tenure before the baby arrives, so much the better.

Set aside specific amounts

Alternatively, they could start putting aside a specific amount at regular intervals, so that the EMIs are taken care of during the period when the couple moves from being just a ‘working couple’ to ‘parents’.

And, of course, the final option is to earn and save as much money as possible during the initial years, plus keep a short tenure and then, try to prepay the loan — so that the DINKs couple have no major EMI worries as the family grows.

(The author is Vice-Chairman and MD, Dewan Housing Finance.)

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