Got a question about your money? What you should or should not do with it?

Our expert Devang Shah has the answers.

I'm 25 years old and my monthly take home pay is around Rs 49,000.

I recently chose an apartment in Mumbai as my dream house which costs around Rs 26 lakh (Rs 2.6 million).

How long should my loan tenure be? Do I have to invest more in insurance for increasing my cover or do we have any home loans with that option as well?

- Praveen Rao

Hi Praveen,

However tempting it may be, don't blindly take the shortest possible tenure.

If you do so, you will end up with a hefty Equated Monthly Installment -- this is the amount you pay every month towards the repayment of your home loan. You may find this a stress on yourself.

Even when you are repaying the loan, you must save. Don't stop saving just because you have a loan to repay. That is why the EMI must not pose too much of a financial burden on you.

Consider the EMIs for various tenures. Settle on the tenure with an EMI that you are comfortable with. With this EMI, can you meet all your monthly expenses as well as have some to save and put aside for an emergency? If yes, then you can settle for an EMI around this figure.  

Let the EMI decide the tenure.

And then, pre-pay whenever possible. Of course, read the fine print to make sure you will be able to prepay without penalties, as much as you want and as often as you want. The home loan company may or may not charge a pre-payment penalty (a percentage of the amount you are prepaying). Some may charge only if you are repaying the entire principal and not if you are repaying just a part (part pre-payment).

If your home lender does not cover your life for the loan, then there are companies which offer specific term covers for covering loan repayments.

Read Have a home loan? Insure it to understand how home loan insurance works and who offers it.

Illustration: Dominic Xavier

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