Invest in Credit Risk Mutual Fund or not?

As you get into your 40s it is generally time for big changes in life. Though the profile and needs would vary from person to person, 40s is the time when the initial uncertainties of work life would be behind you and you are now well and truly settled in your mid-career and are aiming big. You would be thinking of ways to finance the higher education of your children.

If along with the changing life goals you add the need of buying your dream home when you are in your 40s you will be making a large financial call since home buying is one of the biggest financial decisions you would make in your life. Hence it is best to make a considered decision.

Here are a few factors that you should keep in mind if you are buying a house in your 40s.

Get the specification right

‘Social proof’, a behavioural bias wherein individuals try to imitate what others are doing, is a strong factor during these years. However, you should not let this derail your independent thinking and have an overbearing influence on your final decision. Your requirement may significantly differ from that of others. Hence understand what your needs are. Your decision should depend on your family’s needs and based on the convenience of the location. The size of the property would depend on the size of your family and the location could be near your office or school where your children study. With Work from Home (WFH) and online education likely to pick up pace you might need a larger space to accommodate a makeshift office or a classroom at home. Do not let your judgment be swayed by freebies offered by the developer, such as extra parking slots for ‘free’.

Prepare finances well

This is a stage of life when you are fast approaching some financial goals such as higher education and marriage of children which require commitment of large finances. Hence it is all the more important to do your financial planning in order to avoid shocks. So get back to the planning board. If you are looking to buy a property in the next six months, then keep most of your investments in safe instruments such as bank fixed deposits (FDs). Do not overinvest in stocks or equity funds just because the market is looking good. If the markets correct when the home purchase is nearing your capital accumulation may erode and you would have difficulties in making payment for the home of your choice.

Check credit report

Do pull out your credit report if you plan to go for a home loan. It will tell you how easily you can access credit to finance the home. If your credit report shows some errors then get it fixed. You should try and get an in-principle sanction letter from the lender of your choice for a home loan as well. It puts you in a better position at the negotiation table and ensures peace of mind.

Also do not forget to build or enhance your emergency fund after factoring in the future EMI payable so that you are able to service your loan even if you meet with financial problems due to loss of job or otherwise.

Check tenure and rates

A home loan becomes inevitable for most homebuyers. Your residual work life is getting shorter and repayment tenure may get compressed resulting in larger EMIs if you delay the home purchase. Lenders may not like to go beyond 20 years repayment period. This is especially true if you are going for a pre-owned property.

Also, at a time like the present when interest rates are predicted to go up, you have to be careful. The lender may not allow you extension of your home loan tenure in case rates go up and you may have to pay a higher amount towards EMI. Do factor in such a possibility while going for a home loan.

Prioritise your goals

Though buying a home may be a priority, other financial goals could be as important if not more at the stage. If you have a teenager at home, then her higher education is not far away. You should not touch her/his education fund that you created while buying your home. You should also not use up your retirement funds to pay for your home loan, though it is allowed to do so.