Home Loans: Pros and Cons
Posted: Nov 03, 2018
Home Loans: Pros and Cons
It’s a dream of none to have a home loan attached to them, but a dream to have a home of their own. While, you are searching for a home loan, there are high chances that you end up availing on home loan for yourself. Getting a home loan is as important as getting a home of your own, as this is the home loan, which is a helping hand in buying a home for you and your family.
However, getting a good loan is always an important aspect., especially in the case of a home loan, as it’s a long term liability and which affect the way, your family spends another 10 to 20 years. Thus, researching well before deciding on to take a loan is a must. Any bad loan can turn your joy of buying a home into a nightmare.
Around 80% of the residential real estate deals happen by availing home loan
Even, if so many people are taking the services of a home loan and fulfilling their dream of a own home, buying a home on home loan is a financial decision and every financial decision has its own pros and cons.
Pros of a Home Loan
In fact, no one can argue on how beneficial is he Home Loan, especially to realize a dream. What, if there would not have been a helping hand, in the form of the home loan? Is there any way, you could have made your decision on buying a home? With no one ready to lend to money for a duration extending to 10 years, 15 years or 20 years; there would been no choice except dropping your plan for purchasing a home. Here are some beneficial sides of a home loan:
Sense of Accomplishment
A Home Loan is a financial support, which allows you in realizing your dream of purchasing an own home. Buying a home is one of the biggest financial investments, you can make; with the sentimental value and being the largest component of your financial portfolio
Rise in the Prices
With a home loan, you are entitled to your own home; and those who have noticed those times, when the real estate were booming, the prospect of mouth watering capital appreciation is the benefit attached.
Rise in Rental
You may take it in two different ways; one is what’s the worth of staying in a rental property and paying your hard earned money as the rent, for the thing, which you are never going to own. The other is if you own a home, you can utilize it to gain rental income as thus a consistent source of income. The rentals are on the increase each year, and thus better be a homeowner and utilize this benefit to your own good rather than a victim
Sense of Freedom
Any home of your own offers you with the needed freedom and liberty, while you are living there. With so many restrictions on a rental property, its better you offer freedom to your family with your own home
Redesign the way you like
With a home of own, you have the entire freedom over how the home should look like. You have the complete freedom to redesign or remodel your home, in the way you like.
With your own home, do whatever, you want to. You can create an additional source of income with your own home by opting for renting it out. Build an additional floor and rent it out to cover your EMI.
Long Term Planning
A home Loan offers a person the needed support to plan for a long term benefit. With the home loan, buying a home will pay off very well in the longer run especially for those who plan to stay at one location for around 15 years.
Low Interest Rate
Over a decade, the Home Loans Interest rates have declined; as of now, many home loans are available at around 8.3%, which is at its lowest rate. The Home Loans allows getting rid of costly rentals, and paying the same amount as EMIs at your Home Loan.
Proper Verification of your Property
Before sanctioning/approving a home loan, banks take care of all possible reasons and safety measure of its loan not turning default. Before sanctioning the loan amount, the banks meticulously observe and go through all the paperwork of the proper and ensure that the property doesn’t have any legal issues. With the proper analysis of the project, the builders and taking care of all possible legal issues, the bank ensures that the property at which the home loan is applies must be completely valid. This, in a way saves your time and effort and also offers you a really safe way to cross examine the property, you are purchasing.
With most of the loans, there come tax benefits! The same applies to the home loan; under section 24 B, Income Tax Act 1961, a person is liable to get a tax benefit of up to 2 lacs on the interest paid on the home loan, utilized for the purpose of buying a home. Thus, while filing your Income Tax Returns, you can claim this deduction in your return form.
Another Tax Benefit
There’s another tax benefit, which the Indian Government offers to the home buyers. To encourage people in buying their own house, the Indian Government offers a tax deduction on the principal amount under section 80 C, It states that a person is eligible to claim a deduction of 1.5 lacs in the financial year, under section 80C and under Income Tax of India 1971 Act
Deduction for first time buyers
Offering all sorts of encouragement to the people for buying their own home, an additional deduction of a maximum of INR 50K (with the conditions that Property value should be more than 50 lacs and loan amount should not exceed 35 lacs) and is being offered under Section 80EE, by the Indian Government.
Joint Home Loan Benefits
Adding to the tax deduction part, the Home Loans comes with another benefit for the joint home loan. Under Section 80 C, if the loan is taken jointly, each loan holder can claim a deduction of home loan interest up to a maximum of 2 lacs, separately, while a deduction of INR 1.5 Lacs for the principal repayment.
No Prepayment Charges
With the home loans, offering many benefits in the form of liberty, capital appreciation, tax benefits, it also offers another benefit to the people, in the form of the no prepayment charges. If you are availing home loans, and you might be in a condition where you have surplus money, you can utilize this money to make part payment towards your home loans, thus lowering your burden. Since, there are no prepayment charges in the case of fixed rate home loan; you can save your interest amount being paid. However, you must be aware of the fact that floating rate home loan carries prepayment charges. So, it is advised to talk to your bank in this regard.
Balance Transfer Facility
With home loans, you have the facility to balance transfer. You can quite easily transfer your existing home loan to other lender, who is willing to offer you much better rate of interest. However, this process may attract some charges, and thus better to consult your bank over the balance transfer process and fees.
Longest Loan Tenure
Among all loan types,. The home loan comes with the longest loan tenure, which in some cases extend up to 30 years. Thus, with the reduced EMIs, you can avail a handsome loan support from the bank and other lending agencies to buy your own home.
With the home of your own, you have the facility to enjoy capital appreciation over your home, The prices are rising with each passing years; who knows, a property bought worth 30 lacs may turn into worth of 1 crore, in 3 years or so!
Greater Credit Eligibility
As soon as you are out of your loan liability you really own as asset which has a great value in the eyes of the banks. Possessing an expensive asset allows you to take other loans with ease, by putting it as collateral.
Good Credit History
With the timely pay off your EMIs, you are collecting good reward points for yourself. Establishing a good CICIL or Credit History is just one of the other benefits, you can achieve with the Home Loans. However, taking up the Home Loan just for this sake, is never recommended. You should only avail a home loan, if you really are in need of.
Cons of Home Loans
With so many benefits explained to you regarding home loans, lets discuss some negative side of home loans.
Long Term Commitment
Since, a home loan is a long term commitment, people should think very deep if they should really avail home loan. Are they really ready to take up the responsibility of a home loan? Since, the future is unpredictable, where you may come across several unseen responsibilities and hindrance, committing to a home loan for say around 10 years, 15 years or 20 years, is a really tough ask!
EMIs may Increase
If you made up your mind to take a floating rate home loan, it may happen that the rates of interest on home loans increase, which will have a direct effect on what you are going to pay as EMIs. Any increase in EMIs can be troublesome for you and your family, in case you are not financially ready to handle it.
In case of accidents or death
Have you ever paid attention at these factors? What, if you aren’t able to earn money in the future due to some unavoidable circumstances, or if in case of death, the income gets completely null. How will the EMIs be compensated each month? Think twice?
Every loan borrowed comes some side effects of its own, but considering the huge list of benefits associated with the home loan, the home loan can be considered as a safe bet. The home loan offers you several benefits as compared to some limitations, of course. But the best thing is that the lists of benefits are way too longer to be compared against the limitations of home loans.
Dream comes true with a Home Loan
In fact, a home loan allows a person to have a home, a dream home, every the entire family can live peacefully and happily. It allows a person to offer security and freedom to the whole family, where the restrictions of a homeowner are not forced upon and where the family can have a private life of their own. The Home Loans come to the rescue of a person, when nobody can help you in the purchase of the home, considering the high amount requirement and longer tenure. Offering a loan to such a long duration is never possible for any family members or friends. This is where the home loans score.
In fact, Home Loan is the loan type, which you will never regret taking it. Buying a home is an investment, which is always going to deliver you better deal. With the complete freedom, a sense of achievement, being a homeowner, safety and security to your family, an asset of your own, additional source of income, and many benefits associated with an own home, it’s definitely worth buying a home. Only thing to ensure is that you can repay your EMIs well on time, for so long years, and if you are confident enough in doing so, no other decision better than this, can be taken in your investment journey. Of course, an own home and sentiments are connected very closely and sentiments and inner joy & happiness always score above everything else!