Why you should take that home loan now

It was still raining when we left the quaint little town of Canacona in South Goa. As the light rain caressed the windowpanes of the car, I wondered, why can't one continue living a dream. In a few hours, both of us, would be back to the rigmarole of our daily lives in Mumbai.

"So?", she said, trying to start a conversation. She hated the idea of travelling in the rains.

"Nothing really," I replied. "You tell me."

"I was talking to my mother last night and things got really tricky."

"You mean emotional blackmail?" I asked.

"Yeah," she replied, giving me that questioning look.

"Well, on the aggregate, mothers are rather predictable."

"Well, she wants to come and live with me, for six months in a year."

"So?"

"She wants to live in a house that I own, not in a rented flat."

"Oh. Physically, how is one different from another?"

"V, don't be stupid! You want me to tackle emotion with logic?"

"Hmm. Fair point. So, let's go through your housing dream again."

"As in?"

"Last week, you told me you had savings of around Rs 35 lakh and the flat you want to buy costs around a crore."

"Yup. That is pretty much the case."

"From the savings you can make a downpayment of around Rs 25 lakh. The bank has agreed to give you a loan of Rs 75 lakh."

"Yes."

"At an interest rate of 8.5% and a tenure of 20 years, the EMI will work out to around Rs 65,000."

"Haven't we discussed all this," she said, getting slightly irritated.

"Typically, while giving a home loan, the bank works with the assumption that around 40% of your income will go towards paying the home loan EMI."

"Interesting. I didn't know that."

"I guess, given that, you should be fine even if the interest rate on your home loan goes up." "Yes."

"At an interest rate of 10% per year, your EMI on a 20-year loan works out to a little over Rs 72,000."

"I should be able to manage that. But do you think interest rates will go up?"

"Oh yes. More likely than not."

"Why?" she asked.

"Inflation has been going up. In June 2017, inflation was at 1.5%. Since then, it has had a largely upward trend and in May 2018, it was at 4.9%. Interestingly, India moved to the Goods and Services Tax (GST) in July 2017."

"So, with higher inflation, interest rates will go up."

"Also, the government recently raised the minimum support prices on 14 crops that are sowed during the summer. The price of rice was raised by close to 13%. This increase will feed into inflation."

"And?"

"The US Federal Reserve has made it clear that it will increase interest rates. Given that, a lot of foreign money that has been invested in bonds in India, is likely to move out. This will put pressure on the rupee."

"So?"

"If the RBI wants more foreign money to keep coming into Indian bonds, and the rupee not to lose more value against the dollar, it will have to raise interest rates. All this will ultimately lead to higher interest rates on all kinds of loans, including home loans."

"Now, I understand," she replied. "Is there any way I can lower my EMI?"

"Get married to S."

"Yeah, you heard me right," I replied. "When two people borrow to buy one home, your eligibility will go up. If you buy the same home, your EMI will come down, as both of you will repay."

"V, you can be so stupid at times. S is my roommate. How can I get married to her?" she said, as our rented car entered the Dabolim Airport.

The Woodpecker Airlines flight we were taking to Mumbai, would be a rather quiet one.

(The example is hypothetical)

Vivek Kaul is the author of the Easy Money trilogy