Money Wise: So You Decided To Buy A Home — Here's How To Manage Your Finances

Home. There’s so much baked into that one word. Of course, its much more than the four walls. It’s your space, which you share with people closest to you. And this is why so many people are uncomfortable with the idea of living on rent. It doesn’t matter where you stand in the ongoing debate on whether to buy or rent. The bottom line is that it is prudent to have at least one home to your name – whenever you choose to acquire it (it may also be an inheritance). This is simply because of the security it gives you in your later years.

Home. There’s so much baked into that one word. Of course, its much more than the four walls. It’s your space, which you share with people closest to you. And this is why so many people are uncomfortable with the idea of living on rent. It doesn’t matter where you stand in the ongoing debate on whether to buy or rent. The bottom line is that it is prudent to have at least one home to your name – whenever you choose to acquire it (it may also be an inheritance). This is simply because of the security it gives you in your later years.

In this message I’m not going to debate the pros and cons of buying a house and renting. Rather, I’m going to assume that you’ve already decided to sign the cheque, and in all probability, get a home loan. This week on our weekly personal finance show, Money Wise, I had a conversation about how you should manage your finances when you’ve decided to buy a house and while you’re paying back the home loan.

If you’re planning to take a loan or have recently taken one, now is the golden window to knock a significant chunk off the principal. I know, this is usually when it is toughest to do. And that’s understandable. But that’s where planning comes in – aim to accumulate a sizeable amount for the down payment. And then, at the very least, pay one extra EMI every year.

Within the first three years itself you’ll shave off a significant amount of interest. You’ll find the math here.

Otherwise, you’ll likely pay double the original value of the house by the time you’re done with the loan.

Of course, this interest cost is also determined by the prevailing policy rates, determined by the Reserve Bank of India. If you followed the news from overseas this week, you’ll have noticed that the Federal Reserve in the U.S. cut its policy interest rate by 25 basis points, as expected. But it also guided for a gradual easing of monetary policy in the upcoming year. What that means is that interest rates in the U.S. will go down slower than was previously expected. That had a bearing on global markets – equity, bond, and currency. The dollar strengthened, bond yields rose, and equity markets saw selling.

But how does that affect you? Ultimately, the RBI decides monetary policy based on the prevailing factors here in India. The former Governor Shaktikanta Das has said this often. And while this is entirely true, the RBI can’t unilaterally cut or increase interest rates without taking into account what other major central banks are doing around the world. The Fed’s stance reinforces what I’ve already been told by a couple of fixed income fund managers – there’s likely to be only 50-basis-points worth of rate cuts in 2025 – at least as things stand right now.

And what that means, is that interest costs for you are not substantially going to go down. On the flip side, your fixed deposit rates will not fall dramatically either. Here’s where they stand right now.

As we end the year, if you’ve got a little more time on your hands, perhaps it’s a good idea to plan your taxes and your investments in the new year. There’s just one more deadline for the payment of advance tax – March 15. That’s the last tranche for the year. Remember, if you’ve sold investments during the year, that usually means that you have to pay advance tax and it’s best to pay this on time, because not paying could entail penalties.

And with that, Season’s greetings to you and your families!