Posted On Jan 9, 2020 by indusnet
Buying a home is a huge financial leap. It would remain a distant dream for many if there was no concept like ‘home loan’. With the rising property rates, buying a home surrendering the entire savings is almost impossible. A home loan is a saviour for Indian middle-class people to fulfil their dream of owning a house. Home is a precious buy, not just for its sentimental value but the great sense of security and accomplishment that it infuses.
But the question arises whether to take a home loan or not if someone has the money to pay upfront. It is true that home loan is a heavy liability considering the huge amount and long tenure that is attached to it. If you have enough money to buy a house without a loan, you will have certain advantages like:
However, purchasing a home without any loan also means, a large sum of your savings is locked in one investment. And it should not be done at the cost of exhausting your retirement or emergency fund. That ‘s why experts suggest taking a home loan as it comes with several advantages.
A deduction up to Rs 1.5-lakh towards the total principal repayment on the home loan can be claimed under section 80C of the Income Tax Act for a self-occupied property funded by home loan. Homeowners can also claim a deduction of Rs. 2 Lakh on the interest component of the home loan EMI under section 24 for self-occupied property. In case of rented property, the income tax deductions also include 30% of the rental income plus municipal taxes paid plus the interest paid on home loan. The deductions make the rental income zero or negative resulting in ‘loss from house property’ that can be set off against other income tax heads reducing the overall tax liability on the taxpayer. So, home loan is considered to be the most-effective tax-saving instrument.
When you repay your home loan in a timely manner, your credit score gets improved. The timely payments of EMIs, as well as the repayment of the principal amount on home loans, increase the credit-worthiness of the person. With good credit-worthiness, it gets easier to get approval on future loan and credit card applications.
Real estate is a big investment. Even if you have enough funds to buy a home without a loan, it is not wise to lock a big portion of your savings in one asset. Experts suggest to carefully assess the funds and find ways to diversify the investment areas. Investing in real estate also means the money is locked for a long tenure. You can try to liquidate the property investment in future by selling it when an urgent fund is needed. But property sales always take time to receive the desired value. You should also be ready for the emergency funds instead of spending all your savings at one go.
When you are buying a home with the savings you have, you are restricting the budget and there will be lesser chances to consider better options for houses. With a home loan, you can opt for a better house in a better location. For example, if you are looking for a 2 BHK affordable apartment in Joka, you might be able to afford a home suited for your budget but serves you no good. Whereas, with a home loan you might be able to afford a residential property at Rajat Avante near Joka Metro which comes with world-class amenities and a plethora of modern facilities.
Home loan will give you the liberty to go beyond the fixed budget and look for better property options.
Home loans are offered at attractive rates by banks and other financial institutions. Government is also taking initiatives to make homes affordable by people. Before making the investment, consider all the pros and cons of choosing to spend money from the savings or opting for a home loan.