Home Purchase is a big decision and like all big decisions, you must need to be well aware and prepared before taking actual action. For example, the first thing that you have to arrange is sufficient money to make the down payment. Here any quick and uncalculated move can cause you into financial jeopardy. Here we are discussing the things that you should avoid while accumulating money as down payment for your future home.
Don’t use your retirement savings
Using the retirement savings to pay off the down payment appears as an easy option but it is the right choice, says Banknomics. It is seen that once you start using your retirement funds, there will be no stopping. You will start falling more into all kind of needs. As time passes, you will need to retirement funds to live your life and if you use it elsewhere, you will definitely face challenges after retirement.
Therefore if you are using to use EPF (Employee Provident Fund) or PPF (Public Provident Fund) to make the down payment on your house, its time to think again. The option to withdraw your funds from PPF account is available but it should be used in emergencies only. You can get the real benefits of making money with PPF only when it is invested for the long term, therefore it’s not the one thing to choose when planning for down payment for your home.
Don’t use your Kid’s Education Funds
Some people think that they can use the funds that they kept for their child’s education now and they will arrange it later on but it does not work always. As per the research, if you use part of the education amount for another purpose then it’s almost certain you won’t attain your goal.
When you fail to save the required amount for your child’s education, you stand at a place where you have two choices, first is discontinue your child’s education and second is to arrange the funds from other sources. The most chosen source in such situation is Education Loan. Here too you are going to pay a good interest amount. It will give you an additional burden on your finances as you have now both home loan and education loan to repay.
Don’t take Personal Loans for Down payment
Choosing personal loan to use it as down payment for your home can be the worst decision as it can put you into tough debt obligations. It’s because personal loans are relatively quite expensive and even if the rates have been decreased, the average interest rates are from 15% to 18%. If you choose a property of Rs. 1 Crore, you can get up to Rs. 80 Lac at a rate of 9% for 20 years that comes with the EMI of Rs. 71,978. Going for the personal loan at 18% APR for the duration of 5 years for the down payment of Rs. 20 Lac will become EMI of Rs. 30,866. These 2 EMI payments can be a heavy financial stress and this will push your other goals by several years.
Never Surrender Insurance Plans
Life insurance is a very useful tool to protect you and your family. It helps when you are not around to take care of their needs. Surrendering your insurance policy before time may solve your down payment issue for now but you are taking the risk of your family’s future security.
But you have a better option; you can choose the loan against insurance policy from either bank or insurance company. Choosing the Loan against insurance policy from Insurance Company is better as the bank’s charges higher than insurance companies.
Banknomics suggests you keep above-mentioned points in your mind and follow it to keep your future, you family and financial status maintained without any trouble.