04 June, 2018 New Home Buyers
Whether to buy a house with your hard earned money, that has been accumulated as saving over the years, or to opt for a home loan to fund your dream home? This question has bothered home buyers for a long time now. Both options have their own benefits
Why go for a loan even if you have funds to buy a house?
Whether to buy a house with your hard earned money, that has been accumulated as saving over the years, or to opt for a home loan to fund your dream home? This question has bothered home buyers for a long time now. Both options have their own benefits and disadvantages associated with them. Some choose to focus on the benefits of using their own funds for buying a property such as; less overall cost of buying a property as one would pay only the amount equal to the value of property and not the interesting part associated with home loan, no added financial burden after availing loan etc., while others choose to opt for home loans lured by the advantages associated with the same, like; tax benefits, enhanced eligibility, better options available due to increased eligibility and thus, better living conditions and most importantly, your hard earned savings are kept intact and can be used for better investment opportunities, that can yield better returns.
There is no denying that taking a home loan increases the total cost of the property due to the interest liability that is associated with home loans. If a customer takes a home loan to buy a property, he ends up paying more than double the amount of actual property at the end of his 20-year tenure, considering average tenure to be 20 years for Home Loans. Another thing that bothers most is the financial burden that comes upon the borrower for next 20 years. A customer has to ensure regular payments of EMI for the complete tenure without even a single bounce so that his credit health is maintained up to the mark.
But funding your home with saving funds also comes at an expense. A customer has to save for many years to accumulate enough money to buy a property without any financing. In a single transaction, he will have to give away a huge chunk of this savings and would end up with nothing or just a few savings left with him. This sum could have been used in many other ways like, putting in investment options like FD, SIP or any other investment tool that could yield him much better returns. Moreover, making such upfront payment should never come at the expense of emergency funds or retirement funds.
Benefits in opting for Home Loan:
1.Tax Benefits: Financing your home through a bank or NBFC entitles you to avail certain tax benefits. For instance, for a self-occupied property, a maximum of Rs 1.5 lakh can be claimed as a deduction under Section 80C of the Income Tax Act. Under Section 24, borrowers can further claim a deduction up to Rs 2 Lakh on interest paid on a home loan. These benefits make a home loan, one of the best tax saving instruments.
2.Improved Credit Worthiness: Regular payments of EMI for long tenures gives you the advantage of boosting your credit score. The better is your credit score, better are your chances of getting approved for any kind of financing with banks or NBFCs. Banks judge a borrower by his/her credit score, hence keeping a high credit score is always advisable for customers.
3.No lock-down of funds: Investing your savings in real estate locks down a huge part of your money into one single investment, which is a very risky situation for any kind of investment decision. Like any other investment, real estate investment also has risks associated with it, especially seeing the current trends in the real estate market, one must avoid investing their savings in buying real estate. This sum of money can instead be invested in more stable investment tools that could even ensure better returns.
4.Pre-Payment/ Part-pre-payment: Even if a customer takes a loan for 20 years, he can choose to make pre-payments or part-payments any time he wishes after a small lock-in period, which generally is not more than 6 months. This will help him to lower down his tenure substantially, that would in-turn decrease total interest payable, which generally the biggest concern in opting for a home loan.
5. Enhanced affordability and improved livability: There is no denying that opting for home loans enhances your affordability to buy better homes that improve one’s livability as he can now opt for a better home in a better locality boosting his living conditions and thus his social status.