Indians tend to save money. In the past, the older generation used to save money to purchase houses. There are instances of people withdrawing their Provident fund amounts to buy houses. People used to sell jewelry to raise funds. Home Loans were unheard of in those times. Thankfully, the trend has changed with the times. Today, Home Loans are available easily. People realize the benefits of availing Housing Loans. It also explains why the average age of the Home Loan borrower has come down.
Should you now tap into your savings to buy a house when you have a Home Loan? No, you need not. These reasons should convince you not to exhaust your savings when purchasing a house.
1. Lowest Interest Rates:
Home loans are the cheapest of all loans available in the market. The starting rate of interest on a Home Loan is 8.40% currently. The low interest on the Home Loans makes it an attractive proposition. You can use your savings for your children’s education or plan for a retirement corpus.
2. Higher Loan to Value (LTV) Ratio:
Banks approve Home Loans to the extent of 80% of the value of the property. Hence, you have to provide a minimum of 20% as your contribution towards your home. Banks can even go up to 90% of the value if the loan is less than Rs. 30 Lakhs. It is advisable to go for the maximum Home Loan Eligibility as you can use your savings for other purposes. Seasoned real estate agents like buyers agents Melbourne, are experienced enough to let the prospective buyers know how much financing is possible on a given property.
3. Joint Loans are Possible
It is the age of double-income homes today. It means you can save more. At the same time, it also increases your Home Loan eligibility. Banks account for income of both the borrowers while calculating borrower’s eligibility for a Home Loan.
4. Save Your Funds for Doing Interior Decoration
You need money for your interior decoration purposes. It is better to save your funds for doing the internal work rather than resort to taking Personal Loans at a higher rate of interest. It makes sense to avail a more significant Home Loan if you meet the eligibility criteria comfortably. You can use your savings for better productive purposes.
5. Tax Benefit is the Key
People today opt for Home Loans purely because of the benefits they get in income tax. When you apply for a Home Loan in joint names, both the borrowers can claim income tax benefits under the Income Tax Act 1961. Sec 24 of the IT Act 1961 allows you to claim benefit up to Rs. 2,00,000 on interest payment. Also, you can claim a maximum of Rs. 1,50,000 by way of repayment of principal amount under Section 80C of the Act. First-time buyers get the more advantage of claiming Rs. 50,000 as interest payment under Sec 80EE. Women beneficiaries have more benefits in comparison to men. Therefore, it makes sense to opt for Home Loans and avail the maximum benefit in income tax.
6. Assured title
Before approving the Home Loan, the banks make a search of the records at the Sub-Registrar’s office for a minimum of 30 years to verify the genuineness of the title. It also ensures that there are no encumbrances on the property. It works to your benefit as well.
Banish Your Apprehensions
The above reasons should convince you to opt for a home loan instead of tapping into your savings. Are you worried that you are incurring a significant liability? It is natural, but you can manage the EMI (Equated Monthly Instalment) because of your joint income. You can also opt for a more extended tenure and settle for a lower EMI. Remember, you can always repay more than your EMI every month and save a lot of money.
Opt for Home Loan Insurance
The Home Loan is probably the most significant loan you will avail. Hence, it is natural to feel perturbed as to what will happen when you are no longer around. The Home Loan insurance can solve this problem. Are you worried about the premium? You need not because banks have specific products wherein they finance the insurance premium as well. Your dependents will not have to bear the obligation of repaying the Home Loan.
Indians, with their tendency to save, prefer to use their savings and opt for a lower loan amount. The primary objective is to minimize the debt as much as possible. However, tangible benefits like income tax concessions and home loan insurance should encourage you not to exhaust your savings and go for a home loan instead.
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