Purchasing a home is a huge investment. Many people who buy overpriced homes on loans become bonded labour as they suffer almost 20 years (240 months) paying EMIs (Equated Monthly Instalment) for their home loan.
During the past few years, urban population is increasing significantly. With the fast increase in urbanization, the demand for homes in urban areas has increased. The middle class people known for their ‘future thinking’ are actively buying homes. In this process, they are getting sucked, and becoming bonded labours paying back huge amounts due to overpricing of the realty sector.
Majority of middle class people purchase a home by taking loan from the banks and tend to choose a longer repayment tenure to avoid high EMIs. This makes them pay more than double the amount they have taken as a loan. The seller will be happy as he gets all the amount at once. It’s the buyer who suffers by paying monthly instalments for a long period. By paying 1/3rd of his salary towards EMI, it becomes very difficult for a normal employee to get adjusted with the remaining salary.
Let us see the burden on the seller, by taking an example. Suppose, you have purchased a house and took a loan of 10 lakhs from a bank. Assuming interest rate to be 9.75%, you should pay Rs.9,486 EMI if you want to repay in 20 years. After 20 years, you would end up paying Rs.22,76,640. This is excluding processing fee and other charges. It clearly shows that you will be paying 2.2 times the amount you have taken as loan.
Assume you want to repay it in 10 years, then you have to pay Rs.13,078 EMI. But many people cannot afford to pay such huge amount every month towards home loan alone. An average employee in a decent company, today, gets around 15,000 to Rs.20,000 per month. If he spends around 10,000 per month just to repay the loan he has to struggle with the remaining amount of his salary for next ‘ten years’.
The case is worse when you take a flat in an apartment. By the time you finish your instalments, your home will have significant cracks on it. Not even two generations can live in the same apartment that you have bought with your hard-earned money.
So, think twice before investing your hard-earned money in a home. Especially when you are buying it on loan, you are not just investing money, you are giving a commitment for the next twenty 10 or 20 years.
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