Should you take a Home Loan or use your savings to buy a house?
Have you saved throughout your career and accumulated enough funds to buy your dream home?
Although there are a lot of factors that can influence your decision about whether to take a Home Loan or dip into your accumulated finances, such as your current work and position, Home Loan interest rates, monthly expenses, purpose of home ownership etc., researching your possibilities by making a list of pros and cons is always a great idea.The ultimate decision depends on your financial needs, your monthly earnings and savings as well as how much you are likely to spend for purchasing your house.
Making the Smart Choice When it Comes to Using Your Savings
If you have been saving money and are a little short, it is a good idea to wait for a while and buy the house once you have the money. You can also hope to bargain with the seller for a substantial discount if you pay the entire amount upfront. On the downside, however, the price of real estate usually increases over time so by the time you save an amount the price of the house may have increased further. Another point to be noted here is that paying the entire amount up-front may invite unwanted attention from the Income Tax department. Thirdly, using all your savings to buy a home may not leave you with enough funds for an emergency.
Why a Home Loan Can be a Good Solution
Taking a Home Loan also has its own set of advantages:
- Tax Savings
If you fall under the higher slabs for income tax, taking a Home Loan even if you can afford a full payment is a better financial decision. This means that you can get the benefit of income tax deduction for the interest and principal paid, as per the current tax slabs. For instance, for a self-occupied property funded by a Home Loan, you can claim a maximum of Rs.1.5 lakh deduction under Section 80C of the Income Tax Act. You can also claim a deduction on the interest component of your Home Loan EMI for a maximum of Rs.2 lakh.
- Improving Your CIBIL Score
Another advantage of taking out a Home Loan is that if repaid properly, your CIBIL score (used by banks or lenders to check the creditworthiness of loan applicants or borrowers) receives a great boost. With an impressive credit score and a history of timely repayment, your creditworthiness increases, making it easier for you to apply for new loans in the future as well as credit cards. This advantage might prove invaluable in emergencies when you may have to take a personal loan.
- Efficiency and Independence in Financial Management
When buying a home, you will be required to pay a percentage of the total value of your new home as down payment. This is usually about 10% of the total cost of your home, and may itself be a substantial amount. If you apply for a Home Loan for the remaining amount, you will be paying EMIs every month for a tenure of your choosing, thus leaving your savings aside for real emergencies and in times of financial difficulties, rather than using them all up in paying for your home. This helps you handle finances more effectively and be prepared for unforeseen circumstances too.
- Easy Application Process
Some people consider the various documents required for Home Loans to be the most bothersome factor, which stops them for applying for Home Loans. Rather than a complicated application process, Home Loans today can be researched, applied for and sanctioned online, thereby reducing the stress and hassle on borrowers. All it takes to apply for a Home Loan is the application form, a photograph, any one identity and address proof, and your income details with bank account statements. This makes the application easy and quick with fast disbursal of funds to your account too, rather than having to wait for weeks.
Are you looking to buy a home? Make a prudent decision and use this Home Loan EMI Calculator to see if a Home Loan is right for you.
Also check out Bajaj Finserv’s Home Loans, which offer attractive rates of interest and may be easily applied for online. With flexible repayment options and a 3 EMI holiday to reduce your financial burden, these Home Loans may be right for you.