Take Home Loan Even If You Don’t Need It
Since an interest must be paid in case you take a loan to buy your home, you would avoid taking it if you could help. Property experts hold a different view and are of the opinion that buyers should avoid direct upfront payment. Taking a home loan has several advantages that many don’t know about.
Avail of taxation benefits
Several tax benefits can be availed of on home loans. Homebuyers can claim a deduction of Rs 2 lakh on the home loan interest under Section 24 of the Income Tax (I-T) Act if the property is self-occupied.
The income tax deductions include 30 per cent of the rental income, plus municipal taxes paid and the interest paid on the home loan in case of a rented property. The loss from house property resulting from the deductions that make the rental income zero or negative can be set off against other income tax heads, thereby reducing the overall tax liability on the taxpayer. On the principal repayment, a deduction of Rs 1.5 lakh can be claimed under Section 80C of the I-T Act.
If one purchases a home for self-occupation for Rs 50 lakh with a home loan of Rs 40 lakh for a period of 20 years at 8.5 per cent interest rate, one can avail tax benefits as follows:
Total amount due for payment (Principal + interest)
Benefit under Section 80C
(Availed of on the principal amount)
Benefit under Section 24
Availed on the amount of interest
Don’t lock your funds
A very important point to be taken into consideration is that real estate investment is a huge investment. A big investment all-together might lead to lock-in of your funds. Experts caution against putting all the sums of money together at once and suggest making judicious plans to use the funds. Though investment in real estate is a good choice, it won’t fetch results like investments in bonds, mutual funds, stocks, etc. It is advised that instead of locking in the money in real estate investment, one should opt for diversification of investments to add to the portfolio and get better results.
One’s credit score is impacted by the timely payments of EMIs on home loans as well as the repayment of the principal amount. If one’s creditworthiness improves over time, it is easier to get future loans as well as opt for credit cards.
Be ready for emergencies
Ensure you have enough money and funds to provide for contingencies. It is not advisable to put all money in real estate or invest in other investments all at one-go.
Go for a better deal
If you pay the money upfront, there would be lesser chances to consider better options of houses since the budget would be restricted to the extra amount one has. Choosing a home loan will increase the chance of opting for a better house in a better location.
It is also imperative to note that a home loan is the cheapest form of debt in India and is offered by banks and other financial institutions at attractive rates. It is also the safest way to not compromise on one’s liquidity. One should make an informed decision by analysing all the pros and cons of choosing to pay upfront and opting for a home loan.