Home is a place that houses our childhood chuckles, whose walls share our college stories and have been witness to the usual highs and lows, happy and sad moments of our lives. It is a place that assures you of security and warmth in the coldest of nights.
So who wouldn’t want to own such a cocoon of safety. Owning a home is a dream harbored by almost all families. But this seemingly simple and homely dream has various dynamics to be settled before fulfilling it. Realizing this dream was also never easier than today. Thanks to our privatized economy.
The economic reforms world over have provided a liberalized and leveled playing field even for the private sector. Competition brings choices and choices make the consumer strong. The home loans sector is one such area. The mantra for today is dreams must be owned but money may be borrowed. A common man did not think of relishing his own home before his retirement age but today the scene stands transformed where a man in his 20s owns a car and in 30s owns a house. Though the American society was always credit seeking, the trend is now catching up in the more conservative societies as well.
A slew of financial institutions like banks, housing finance companies, co-operative societies, etc have come up with the most innovative and personalized loan products to cater to individual needs specifically. But a home loan is not so simple to take. It is not like borrowing money and repaying it when ever convienet. Mortgage home loans are a killer to anyones mental peace of mind. There are innumerable vital aspects to be considered like the choice of interest- fixed or floating, insurance cover, amount of down payment, legal and technical documentation, consequences in case of default, etc. After serious contemplation a person decides a particular institute’s loan and works out his EMI (Equated Monthly Installments).
The prospect of owning a home influences our decision to take a loan and pushes us a little beyond our means. Home loans have a financial and emotional influential cause but unknowingly they also have psychological consequences. It is financial wisdom to optimize the opportunity cost of your money by investing own capital profitably and borrowing money at lower interest rates to buy commodities. But we turn ignorant to the emotional and mental facet of loans and land up with psychosomatic illnesses. It seems a very attractive and manageable proposition to repay the huge amount of money in monthly installments specially when the interest rates seem to head southwards but reality can present different colors.
When a large part of our salary disappears every month towards EMI and the bank balance never seems enough, it could lead to some panic and stress. In our debt oriented economy, commodities and comforts are available by simply swiping the card without much scrimmaging for money. But at the end of the month either cash must be spared or bank balance must reduce, there is no escape. Then dawns the realization, that we probably cut the coat more than the cloth. Over a period of time this phenomenon can be extremely unsettling and lead to financial distress and psychological depression.
The home loan scenario is gaining ground with an overall robust economy and boom in the construction and steel industry. But a growing economy in not the only relevant link to get home loan, an insightful and strong mind are of equal import. The most crucial factor that affects the EMI is the rate of interest, that could be fixed wherein the interest rate does not change over the entire tenure of loan irrespective of changes in the market rate or it could be floating that adjusts itself according to market interest rate movements.
Choosing between the two options is like handling the horns of dilemma. What is most favorable for a customer depends on the expected market conditions and his mental ability to take risks. In the present situation where the Fed Reserve hiked the interest rates 18 times in 12 months, it would have paid to those who opted for fixed interest rate. But the dynamics do not end here, most lenders have a review and revise clause where the interest rate is fixed for a particular number of years and then adjust according to market conditions.
Individuals who are mentally prepared to face the risk of rising interest rate and also benefit from falling rates may opt for floating interest rate scheme. But for the more sedate and shouldering greater responsibility, fixed interest rate would give better peace of mind. Yet the more complex question is, are fixed rate loans really fixed and as comforting as they appear.
What do you do when interest rates rise and EMI’s suddenly increase. You either refinance the home loan at a lower interest rate or are prepared to shell out more of your hard earned money. This implies you keep your mind alert to every market movement and concentrate more on your loan than living. “Quite a heavy price to pay apart from the interest.“
Further life is very capricious and canny. Contingent needs do not knock before coming and could drain a considerable amount from your bank account upsetting your financial planning. In such cases you either default on your EMI or your EMI’s did not leave you with enough balance to meet the contingency in the first place. And you most certainly lose sleep in both situations. But what are your options in case of default, other than feeling stressed and pressurized. The lender has a right to foreclose the property and take possession of the home, which could leave you in a lurch.
But if you believe in equanimity of mind and power of intellect and interaction, things can be smoothened to an extent. If you can keep your cool, a number of possibilities like negotiation, switching over to other schemes like Balloon Repayment or extending the duration of loan by reducing the EMI can be worked out. The lender is not eager to foreclose your property because he earns his profit through your interest and not forfeiting the house. He will be willing to arrange a temporary relief if a calm and rational talk can be held. But this requires you to be a halcyon and not give up when the going gets tough.
Dwelling in your own home gives immense security and satisfaction. While it shields us, even the home needs protection through insurance. Though the discounted insurance cover sounds a very attractive incentive, it is a snare for laymen like you and me. While the insurance may be discounted there are other hidden costs which are difficult to know in absence of transparency. Remember there is no such thing as “Free Lunch” in this world.
Rabindranath Tagore wrote,
“Long did I cherish a desire
Not for wealth, nor fame,
But a tiny house
Tucked away
In a corner of the earth
Where I could be alone
With my thoughts.”
Home is where the heart is. But if the home results in a sinking heart and a straining mind it calls for a revision in the general perception of owning a home through borrowed capital. When the rubber is stretched beyond its elasticity it breaks. This is what is happening with us. Though we have the benefit of double incomes today the lifestyle expenses and educational demands of children have also increased in the same proportions. We are inching beyond our resilience and it is causing a nervous break down.
Dreams surely need to be big but not at a cost that fulfilling them leaves you sleepless and dreamless eventually. It is a psychological disorder that we start agitating and panicking at the slightest un-expectancy. And this requires a spiritual healing. The desire to own a home can not be called greed, it is a wish. The magicians called lenders promise to fulfill this wish in the most simplest and helpful way but magic is nothing but trick on the eyes giving illusions.
You have probably borrowed money but did you find any place to borrow peace. But patience and perspicuity is already your ownership and can solve much of the borrowing business. A patient man has a cool mind which is less impulsive and more alert that reduces his chances to turn into a psychological patient. Putting it this way will make it clearer, there is a marked difference in the taste of a mango for which you patiently wait to ripen on the tree than the other mango that you pluck raw and use external carbides to ripen it. It surely ripens fast but also rots faster. And so is the outcome of externally sourced houses. Let your mind, heart and soul bask in the warmth of bricked building where peace pervades. Life is not just about owning a penthouse overlooking the bay, it is also about owning a shelter that lets you sleep well and eat well.
Balance your financial planning while raising a mortgage home loan to avoid any Psycho financial or loan stress syndrome. The universe is abundant and affluent. Dream and visualize a beautiful home and don’t forget the meticulous financial planning to avoid MORTGAGE HOME LOAN STRESS SYNDROME.
The EMI must not break your nerves.
