Owning a home is a bucket list or life goal like no other. You strive every day to achieve this goal; However, the first steps on this path come at your own risk. With lower interest rates, additional tax breaks, and the ease with which we can access home loans, that dream has become more achievable for millions of people. According to recent data from the Reserve Bank of India, mortgage loans account for 15% of bank loans, making it one of the most widely used instruments by consumers.
The RBI’s recent decision to rationalize mortgage risk will further encourage banks to offer more home loans.
With mortgage rates as low as 7%, there is no doubt that this tool will continue to be used more and more.
However, there are a few things to know when choosing a home loan. At the top of that list is the need to reevaluate your financial plan and determine if you have adequate term life insurance.
The obvious link between term insurance and the mortgage
Buying a home is not just a purchase, it is a responsibility that carries its own risks. One of the biggest risks to consider is: what happens to your mortgage if there is uncertainty? For example, suppose you have a home loan of Rs.50 lakhs at an interest rate of 8.5% for 30 years. His monthly payments, which would be around Rs 38,500, are broken down into principal and interest components, with more principal being paid over the years. If something happens to you, the responsibility for this monthly payment falls on your family, which can be an extremely stressful financial burden.
However, if you choose reliable term insurance with substantial coverage, paying for term insurance can help your family pay those premiums. Therefore, insurance or risk plans are the first line of defense for mortgage borrowers.
Term insurance is affordable risk coverage that helps protect our families in the event of insecurities such as the death of a breadwinner. This life insurance will help you keep your family’s goals and plans in line even when life gets worse. Risk insurance offers the payment of the insured sum in case of uncertainties, financial and family obligations in difficult times.
Take the example above. If you had a 50 rupee home loan and something happened to you ten years after the mortgage was paid, the outstanding loan would still be around 40 lakhs. The responsibility for returning this money rests solely with your family. However, if you had a Rs 1 Cr term plan, your family could easily repay the outstanding home loan.