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Pros and cons of taking a home loan
The great Indian dream starts with having your own home. When looking to buy your dream home, a home loan is a must these days. Thanks to rising prices, purchasing a home funded by all your money is impossible in the top cities. However, some think taking a home loan has some disadvantages. Is that true? Let us find out what are some of the benefits and drawbacks of taking a home loan.
Benefits of a home loan
While one may feel a little bit stressed if they are paying EMIs every month, home loans do carry some significant benefits.
The first thing that home loans makes you is a proud homeowner. Yes, that is true. Home loans ensure that you become a homeowner. Given the increasing prices of land and building materials, buying a home on one's own funds is impossible. Instead of taking costlier loan financing, home loans allow you to take funding at a much cheaper cost and build an asset. Worried if you can get a home loan? Use the IDFC Bank loan eligibility calculator to find out.
Secondly, there are tax benefits for repaying a home loan. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh. There is also deduction in respect of interest paid towards home loan during pre-construction period. Also, the principal portion of the EMI paid for the year is allowed as a deduction, with the maximum amount allowed for the claim being Rs 1.5 lakh. That apart, there are deductions for stamp duty and registration charges.
Thirdly, using a home loan allows you to save on rent. While many prefer to pay rent without ownership, the fact is having your own home means you do not waste money. Paying rent means economic loss because you do not have any ownership. Plus, renting involves annual rent hikes, which are often higher than inflation. Instead of paying increasing rent, one can easily own the same type of home in 15-20 years. Use a home loan calculator to find out your EMI and compare it with the rent.
Things to keep in mind before taking a home loan
While home loans might be a necessity today, that doesn’t mean they are without any disadvantage.
Firstly, home loans entail long-term obligations in terms of repayment. Unlike a personal loan which you can pay off in 1-2 years, a home loan is usually a 10-20 year commitment. This means you have to be extremely disciplined and pay the EMIs on time for 120-240 months on the trot.
Secondly, home loans do not make you 100% owner of the house if you do not repay properly. If you fail to make payments, the financial institution or bank will be free to use all sorts of legal recourse. This, in worst of cases, can lead to you being evicted from the home and the bank taking possession.
Thirdly, home loans can cause you to be less spend-thrift. For those who splurge a lot and often go on foreign/domestic trips and enjoy spending money, a home loan EMI is a responsibility. Since a portion of their budget will be always used for EMI payment, their budget will have to streamline. If you have a tight budget, use the home loan calculator to find out the EMI you will be able to afford.