With the rapidly growing population in Pakistan, the country’s attempting to fulfill the massive housing need via financial institutions. These financial institutions include Banks and House Building Financial companies (HBFC). These lenders are giving home loans in Pakistan to the wide-ranging customer base, so that their housing needs can be addressed. The homebuyers are securing loan for either construction of the home or for purchasing new one.
Taking home loans in Pakistan is a daunting task, grouped with the potential risk of facing serious consequences if not handled properly. The biggest challenge faced by the borrower, while applying for home loans in Pakistan, is to schedule the repayment of the borrowed money since the loan is usually very long term commitment spannign between 15 to 25 years or so. The time span for which he is taking-up loan, the monthly installment depending upon the interest rate and other existing and potential expenses which has the capacity to hinder the installment payment. And, in worst case scenario, if you have availed the loan against pledging your home and you are unable to pay the loan, then, your asset will also be jeopardized and likely to be auctioned for the recovery of the loaned amount by the lender or bank.
Key Factors to Consider While Planning Monthly Installment
Planning your monthly home loan installment is an important task, as it affects various domains in which you are spending money. These domains include your living standard, regular payments, children schooling and other living expenses. Apart from these, few key factors are identified by us after a thorough research, to consider while planning your monthly home loan installment. As it will help you in making an intelligent decision regarding financial management of your finances.
Let’s discuss these factors in detail.
1- Net Income
Your net income is the significant factor in planning your monthly home loan installment. If you have a god job where growing prospects are very good and you are already placed at a good position. Then there is a likely possibility that your income will increase with the passage of time. This will help you in embracing higher loan repayment amount in the initial years, and which gradually reduced after a certain time period. The impact will be higher income and lower installment payment. This will eventually also leave the room for the other expenses like to surface with the passage of time. While on the other hand if you are not a stable job and a low income, you will take up the longer years to repay the loan, and other living expense will also be suffered in the realm of paying the home loan installment.
The banks normally give you a margin of paying the regular loan installments through almost 40-45% of your monthly income. So, plan your home loan installments accordingly which doesn’t affect your household expenses and ideally speaking gives you a leverage to save at-least 10-15% after the all the expenses as a back-up plan.
2- Outlay of Your Earning
While planning the outlay of your earnings, make sure you add all the expenses, and not just the current one. your expenses should include current expenses, household expenses, expenses covering your child education, hospitalization and any other additional expenses. Deduct all those expenses from your earning then plan your home loan installment. Besides this, try to save some percentage of your earning for the rainy days.
3- Repayment Capacity
Your repayment capacity is yet another factor in deciding your home loan installment. The bank decides your monthly installment after looking at your monthly earnings and the market value of all the assets you possess. So that in the event of bankruptcy, the possessing assets will be liquidated and amount can be recovered.
Additional Reading: Finding Best Home Loan Offers that Complements Your Wallet
4- Age Factor When Applying for Home Loans in Pakistan
Age factor also plays the decisive role in calculating your monthly home loan installment. If you borrowed the loan in your career starting years and paying the major earning portion in your loan repayment installment then with the passage of time your loan amount will be reduced and earning will rise. While in the vice versa case, your income will be stagnant in the later part of your life and expenses will increase. In such a scenario, repayment will be difficult. Precisely, if you are taking up loan early, you will be going debt-free quickly while, if you are availing the loan in the later years, it will be difficult to free yourself from debt and managing all expenses.
5- Impact on Living Standard
Paying from your earning for the home loan installment will affect your living standard. As you are taking out a major chunk of your earning to pay off the loan. This might hit your living standard, your dinning out routine and might be your household expenses. Make sure you always consider such elements.
6- Loan Time Span
Loan time span is also crucial in planning your loan installment for your home loans in Pakistan. If you want to repay the loan early then you have to take out the major portion of your income in the context of repayment of the loan early. This will release you from the debt repayment as soon as possible. While on the other hand, if this plan does not sound resonate to you, you can avail the option of repaying the debt for the longer period. Then in such scenario, be prepared that home loan installment will be carved out of your earning for a very long period. However, in any case, whatever plan you opt, make sure that it is well thought out and an organized plan.
7- Mark-up Rate
Rate of interest that will be appliced for your home loans in Pakistan has a major say in planning your home loan installment. Either you have agreed to avail loan on a fixed interest rate or on variable interest rate (offered based on KIBOR rate). In both cases, make sure that it won’t affect your overall survival and should not risk your all assets.
In a nutshell, you should consider your living standard, income level and the projected increments and expenses which you have to bore in future. So, while planning your installment for home loan when applying for home financing or home loans in Pakistan, you must consider all the underlying and the future expenses. Visit Mawazna.com to compare and buy the best home loans offered by the leading financial institutions of Pakistan.
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