What should be the ideal ratio for home loan EMI to yearly earnings as Seafarer

What should be the ideal ratio for home loan EMI to yearly earnings as Seafarer

Taking a home loan for a seafarer maybe a little different than that for a land based worker because he has a ability to pay it off earlier. We shall try to analyse and determine this on the basis of the following:

1. First determining factor I would say would be the rank of a person. For example the cash flow from salary would be quite different for the 4th engineer and a master. In case of the latter even if he takes the entire sum on loan he can easily pay off in a few years time. Whereas a junior officer might require many years which may extend to 10 or more than that.

2. Second determining factor would be the the cash available with the buyer.

If the amount in savings is substantial but parked in NRI or fcnr accounts then naturally a large portion of it can be used. However if the sum is properly invested over long periods of time then it would naturally be getting returns in the range of 12 to 15% over 5 to 10 years period in that case there should be no need to disturb that investment and go in for a loan of the amount desired.

3. Third determining factor would be the price of the property. If the price is prohibitively high then it would be prudent to go for at least 50 to 70% of the loan amount .

4. Next most important point is to maintain liquidity with oneself under all circumstances considering the unpredictability of life that we seafarers face. And with this I mean that take the loan, on as low rate of interest as possible with prepayment facility but secure it properly by taking good term plan and the insurance on the property as well.

So as you can see that the loan amount will depend upon some qualitative factors rather than the quantitative ones and a person should be careful enough to structure his finances properly after taking the loan.

In the view of the above. Up to a loan of 1.25 crore I can say that you can easily take UPTO 90 lacs or 1 crore secure it with very good insurances and try to pay off of repay the loan if the rate of interest is high by paying about 8 to 10% of the principal every year.

Having done this the next step become more important by which you should start investing your salary in a very disciplined way. Though the facility of the loan account of SBI and erstwhile HSBC seems very attractive but I am not a very big fan of it as it prevents you from investing your money as soon as it earned.

You must remember that loan is a liability and higher the amount means higher the liability and should be paid off as soon as possible unless the rate of interest is ridiculously low.

From the loan issuers point of view a home loan is the most secured loan which he can recover by taking control of the property at any given time.

a point that I would like to bring out in the circumstances is based upon two cases that came to my notice in last few years. It happens that somewhere in the mid career a person takes a exorbitant loan to buy home and very soon after he gets an opportunity to take up a shore job. Now these two offices workout between the devil and the deep sea because the house for which they had taken a huge loan prevented them from taking up the shore job abroad.

Now you can imagine why something as simple as a home loan can become tricky under circumstances.