A major number of home buyers opt to borrow a home loan to fulfill the dream for owning a house. However the question arises, when the buyer has enough funds to pay for the house in full? Does he still need a home loan? It is quite a topic of debate among property experts. When you have extra funds to spare, why not buy a house with that money instead of using home loans. In fact, the decision is different for different people based on several aspects such as their existing liabilities, age, financial standing, etc.
Many borrowers would say that not taking a home loan has several advantages such as the overall cost of the property would be much lower, no EMI burden for years and no cumbersome bank paperwork. On the other hand, only few people know that there are several advantages of borrowing a home loan which is why you should opt for it even when you have extra funds.
Buying home through home loan comes with several tax benefits. Under section 24 of the Income Tax Act, the homeowners can claim a deduction of Rs 2 Lakh on their home loan interest if the property is being used as a residential property by the owner or his family members (also known as self-occupied property). In case of a property that is rented or ‘deemed rented’, the deductions in the income tax include 30% of the rental income plus the municipal taxes paid towards the house plus the interest paid towards its respective loan. These deductions make the rental income either zero or negative and this ‘loss from house property’ is set off against other income tax heads and reduce the overall tax liability. Under section 80C of the Income Tax Act, the borrower can claim a deduction of Rs. 1.5 Lakhs on the principal repayment.
No Locked-in Funds
There is a popular saying in the investment business- “Don’t put all your eggs in one basket”. Real estate is a major investment of your life, so when you pay for a home in full, a huge sum of amount gets locked-in. This is why experts advise everyone to carefully use the funds and find ways to utilize them in the best way. Though a real estate investment proves to be fruitful but still it might not give you the same returns as investing in other ventures such as stocks or bonds, mutual funds. So, instead of locking in your money for a long time at one place, the experts advice to optimize your returns by diversifying your investment portfolio and get quicker results.
A home loan proves to be a milestone in building and improving your credit history. So, when you make your payments on time towards your home loan EMIs, a positive effect is reflected on your credit score which in turn improves your creditworthiness. As a result, it will be easier for you to get approvals and borrow in future for a loan and credit card applications.
Saving for Contingencies
It is never a wise decision to spend all your savings in one go, whether it is a real estate or any other financial investment instrument. These financial investment instruments can help you to earn extra money that comes in handy during times of emergencies or towards building your retirement corpus (or other life events).
Chance to Buy a Better House
When the borrower decides to pay the money upfront, he/ she will have lesser home options to choose from since the budget is strictly restricted to the amount of extra funds the borrower have. On the contrary, using the home loan route gives you the liberty to go beyond your set budget and look for better property options in better residential locations.
Lastly, the borrower should also consider that the home loan is one of the cheapest forms of debts in India. Quite attractive rates are offered by banks and financial institutions to shape the people’s dreams- the dream of one’s own dream home. Hence, even if you have enough funds, you should not compromise with your liquidity. Weigh all the pros and cons of making the full payment upfront towards buying the property or through home loan and then decide.