When it comes to purchasing a home in India, individuals often rely on home loans to fulfil their aspirations. The loan amount chosen plays a significant role in determining the Equated Monthly Installment (EMI) and overall financial obligations. Explored here are the distinctions and assessment of the impact between a 5-crore home loan EMI and a 1 crore home loan EMI.
Distinctions and their impact:
Loan amount
A 5-crore home loan EMI involves a higher loan amount, while a 1-crore home loan EMI features a comparatively lower loan amount. For example, Rohit, an individual looking to buy a luxurious property in a prime location, may opt for a 5-crore home loan. In contrast, Priya, who seeks a more modest home in a suburban area, may choose a 1 crore home loan. The loan amount directly affects the EMI, eligibility criteria, and interest rate.
Loan tenure
A 5-crore home loan EMI often comes with a longer loan tenure, typically up to 30 years, allowing borrowers to spread out their repayment over a larger timeframe. On the other hand, a 1 crore home loan EMI might feature a comparatively shorter loan tenure. For example, Siddharth may opt for a longer tenure to manage the higher EMI associated with a 5-crore loan, while Neha may choose a shorter tenure to repay her 1-crore loan more quickly. The loan tenure impacts the EMI amount and the overall interest paid.
EMI calculation
EMI computation depends on three factors i.e., loan repayment tenure, rate of interest, and loan proceeds. For instance, Rahul, with a home loan of 5 crore for a tenure of 20 years and an interest rate of 7 per cent will have higher EMI payable than Aishi who obtained a 1-crore loan for a tenure of 15 years with an interest rate of 6 per cent. EMI amount differs impacting the financial planning and monthly budget of individuals.
Interest rate
Home loan interest rate is based on market conditions and your credibility. While Rohit gets a 5-crore home loan at an interest rate of 6.5% owing to his strong credit score, Priya, having a comparatively lower score, avails a 1-crore loan at an interest rate of 8% per annum. So, the loan proceeds and credit worthiness may impact the home loan interest rate, which, affects the total interest paid over the repayment tenure.
Monthly budgeting
Higher EMIs associated with a 5-crore home loan can impact monthly budget allocation and require meticulous financial planning. For example, Siddharth, who opted for a 5-crore loan, needs to allocate a significant portion of his monthly income to EMI payments, limiting his disposable income for other expenses. In contrast, Neha, with a 1 crore loan, enjoys more flexibility in her monthly budgeting. EMI affordability directly affects day-to-day expenses and the ability to save.
Down payment
A higher loan amount often necessitates a larger down payment. For instance, Rahul, availing a 5-crore home loan, may be required to make a substantial down payment of 20% of the property value, while Aishwarya, opting for a 1-crore home loan, might need to contribute a relatively smaller down payment. The down payment reduces the loan amount and overall interest payout but requires a larger upfront investment from borrowers.
Loan eligibility
Bank lenders might impose a more strict eligibility criterion for a home loan amount of 5 crores than a 1-crore home loan. For instance, Rajiv, placing an application for a 5-crore home loan, must ensure to demonstrate a higher level of income, pragmatic credit history, and a legit property valuation to mitigate the requirements of the lender. Conversely, in the case of Anita, seeking a loan amount of 1 crore may witness considerably lenient eligibility criteria.
Interest component
A higher loan amount, such as a 5-crore home loan, leads to a larger interest component. Manish, who avails the 5-crore loan, pays a substantial amount as interest over the loan tenure. Conversely, Anita, with a 1 crore loan, pays a relatively lower interest amount. The interest component significantly affects the total cost of borrowing and affordability for borrowers.
Loan repayment duration
Longer loan tenure for a 5-crore home loan allows borrowers to spread out their repayment over a larger timeframe. For example, Manish, who avails a 5-crore loan and opts for a 30-year tenure, benefits from lower EMIs, making it more manageable for his monthly budget. In contrast, Neha, with a 1 crore loan and a 15-year tenure, experiences higher EMIs but repays her loan faster. The loan tenure choice impacts the total interest paid over the loan’s lifetime.
Tax benefits
Home loan tax benefits on principal and interest repayment might be higher considering a 5-crore home loan than a 1-crore home loan. For example, Sid, through a 5-crore loan, can claim a considerable tax deduction amount, lowering his thorough tax liability. In contrast, Rajiv, with a 1 crore loan, may have relatively lower tax benefits. Considering the tax implications is essential while assessing the impact of different loan amounts.
Loan servicing capacity
The loan servicing capacity differs significantly between a 5-crore home loan and a 1-crore home loan. Aditya, with a 5-crore loan, must demonstrate a higher income and financial stability to manage the substantial EMI payments. In contrast, Riya, with a 1 crore loan, may have a more manageable loan servicing capacity due to the lower EMI amount.
Risk exposure
A home loan with loan proceeds of 5 crores has higher risk exposure than Rs 1-crore home loan. On such an occasion of property value depreciation and financial instability, the loan borrower with a loan amount of Rs 5 crore such as Aman might witness more considerable challenges in meeting the repayments of loan EMI. On the other hand, Reena, with a 1 crore loan, has a relatively lower risk exposure due to the smaller loan amount.
Financial flexibility
A loan amount of Rs 1 crore provides higher financial flexibility than Rs 5 crore home loan. For instance, Karan who avail a loan proceed of Rs 1 crore can allocate a part of his earning towards other crucial financial goals like savings, investments or education. On the other hand, Sanya, with a 5-crore loan, may have limited financial flexibility due to the higher EMI commitment.
Investment opportunities
Opting for a 5 crore home loan EMI may limit immediate investment opportunities. For instance, Akshay, with a 5-crore loan, may have to focus on managing the loan repayment before considering additional investments. Conversely, Deepika, with a 1 crore loan, can allocate a portion of her income towards investments or other financial instruments. The loan amount affects the ability to explore investment avenues.
Credit score impact
Managing a 5-crore home loan and a 1-crore home loan can have varying impacts on an individual’s credit score. Varun, with a 5-crore loan, needs to ensure timely repayments and responsible financial behaviour to maintain a good credit score. In contrast, Natasha, with a 1 crore loan, has a relatively lower credit score impact. Maintaining a good credit score is crucial for future borrowing and financial credibility.
Conclusion
Selecting between a 1-crore home loan EMI and a 5-crore home loan EMI requires considerable analysis of individual goals, financial situations and risk tolerance levels. Factors like EMI, loan amount, rate of interest, repayment tenure and loan eligibility criteria considerably affect an individual’s finances. It is essential to assess affordability, risk exposure, loan servicing capacity, and financial goals before deciding.
While a 5-crore home loan EMI provides the opportunity to purchase a higher-priced property, it comes with higher EMIs, longer loan tenure, and greater financial commitments. In contrast, a 1 crore home loan EMI offers a more manageable financial burden and greater flexibility.
Getting in touch with a financial expert or advisor, reviewing personal goals and performing in-depth research can help individuals in making a well-informed decision tailored to their particular aspirations and needs. Lastly, selecting the correct loan proceeds ensure a balance taken on homeownership while maintaining stable finances.