Loan or Savings – What’s the Best Way to Buy a House?
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Property is an asset that helps you reap numerous financial benefits over time. Buying a home is one of the top priorities in everyone’s life. However, most people, especially the middle class, find it difficult to afford a house all by themselves.
If you want to buy a home, you might be thinking about the best way to finance a property. You may have enough savings to buy a home. But letting go of all your savings at once is a debatable option.
So, should you opt for a home loan to fulfill your dream of buying a house or use your entire savings for it?
You may believe that it is better to buy a home from your savings rather than taking a home loan. In this case, you might not know the several advantages a home loan offers. Let’s talk about them in detail:
No Lock-In of Funds
Real estate is a significant investment and would require a considerable sum. This means all your savings may get used up. In general, it is advisable not to put all your eggs in one basket. It is important to note that although real estate is a fulfilling investment, it does not give the same returns as in mutual funds or stocks.
So, instead of locking all your funds, you can opt for a home loan and invest your savings into various financial instruments to get good returns over time.
Improves Your Creditworthiness
Whether you’re financially stable or not, you ought to have a good credit history. Borrowing a home loan is a great way to improve your credit score and creditworthiness. Paying off your EMIs will increase your credit score. You can use a home loan EMI calculator available online to calculate EMIs and plan accordingly.
A history of regular payment of EMIs shows a prospective lender that you are disciplined enough to repay on time. A good record on your home loan makes it easy for you to finance future expenses, such as education or car loans.
Helps You Save For Emergencies
It is not a wise decision to spend your savings altogether, whether it is real estate or any other investment instrument. As life is unpredictable, your savings can come in handy during times of emergencies or towards building your retirement corpus or other critical life phases.
When you opt for a home loan, you only need a portion of your savings to pay for its down payment. This way, you can keep the rest of the savings intact for contingencies.
A home loan also comes with tax benefits. Under Section 24(b) of the Income Tax Act, 1961, you can avail tax deduction of a maximum of Rs. 2 Lakh towards the total interest payable on the home loan. Moreover, under section 80C of the ITA, one can also claim a deduction of Rs. 1,50,000 on the principal repaid.
Easy to Buy A Home Early In Life
To save enough for a house may take you several years to reach the required amount. Whereas a home loan will allow you to purchase your own home even in your 20s. Borrowing a home loan can help you fulfill your dream of having your home early in life. Also, the rate of interest on a home loan is cheaper than any other type of loan in India.
Reputable banks such as Axis Bank offer home loans at attractive rates. They also provide you with home loan EMI calculators to help you calculate EMI and plan better. Therefore, even if you have enough funds, you must not compromise your liquidity, which you may require anytime. So, before buying a home, weigh all the pros and cons of making full payment upfront and purchasing through a home loan.
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