Becoming an owner of a property is a crucial financial decision. This is a decision that must be taken after considering different parameters. Essentially, there are 2 ways wherein you can go about buying a home – by repaying the whole amount of property in full or by availing a home loan through public sector banks like PNB home loan, Bank of Baroda home loanor private sector banks like Axis Bank, HDFC bank, ICICI bank or any other banks. If you do have adequate funds, you might not find the requirement to avail of debt and pay additional sums in an interest form. Despite this, most prefer to avail of a home loan due to different reasons. Here’s a comparative analysis of the benefits of cash payment for a home in full vs availing of a home loan. Read on to understand which a better option is for you.
Lock in of finances – Buying a property is a massive investment, one wherein you end up locking in a massive amount of money. Experts consider that even if you have the sum to buy the home in a go, it is better for you to avail of a home loan. In place of spending a huge sum of money in lumpsum on the property or home, it is better to opt for a huge amount of down payment and repay the rest of the funds in the form of monthly EMIs that you can afford. In this way, you do not require worrying about the high rate of interest or repayment tenure, and you can still afford the credit option. Additionally, you can use the rest of your sum for other types of investments in place of putting all your eggs in just one basket. You can avail better investment return if you invest in mutual funds, stocks, and bonds in place of investing all of it in real estate. In this way, you can simply diversify your investment and optimize the returns too.
Additional money comes in handy – Whether you decide to avail a home or pay the cash, you must ensure to keep aside some cash to meet your financial exigencies. A financial exigency can come up at any time, like fund requirement for medical treatment, loss of job, child’s higher education, etc. In place of spending all the funds on real estate investment, you must keep aside some emergency money. You can even use the funds to form your retirement corpus. Building an emergency fund helps you during trying financial circumstances, including home loan EMI payments during stressful financial periods. So, in cases like this, it is better to opt for a home loan in place of spending all the savings on a single investment.
Availing of a loan can ameliorate your credibility – Do you know that your credit profile or score can lower even if you do not avail of any loan? This is the next point of debate concerning home loans vs payment through cash for a home. A loan can assist in building as well as ameliorating your credit score. Every time you repay your loan EMI by the due date in full, your credit score improves. This, moreover, works in your favour when you require to take a loan in the future, including a credit card application.
Also Check: Bank of Baroda Home Loan
Can consider opting for better property options – When considering paying the money upfront for property purposes, you usually must stick firmly to your budget. As an outcome, you might end up sacrificing your dream home. Your budget may end up restricting the type of property you want to purchase. In place, it is better for you to make the down payment for a home loan. This permits you to go over your budget and consider a property of your choice. You can use the cash as a down payment and invest the remaining in a good fund for a better return.
Tax benefits – Next crucial point is tax benefits. If you repay a home loan, then you become eligible for a tax deduction of up to Rs 1.50 lakh per annum on the principal constituent according to Section 80 C of the IT Act. You may further claim a deduction of up to Rs 2 lakh on your loan interest constituent in case you, as well as your family, are using the property you have loaned as a place of residence.
Ending note
Purchasing a home is a big financial decision. This decision is such that it must be taken after careful analysis of different parameters. Essentially, there are 2 ways wherein you can go about buying a home – availing a home loan or paying the whole proceeds of the property in totality. In case you have adequate funds, you might not find the requirement of opting for debt and making additional sum payments in the form of EMI with interest correct. Despite this, many individuals prefer availing of the home loan route. One of the major reasons for this is additional money always remains handy with you.
Whether you decide on making a cash payment or availing of a home loan, you must note that you must keep some cash with you for financial exigencies. A financial exigency may strike at any time in the form of job loss or treatment for a disease, or any medical-linked cost, which can be possible only if you have additional cash in hand. In place of spending all the funds in a single investment in real estate, you must keep some emergency funds handy. Also, you can use this fund to form your retirement corpus. Availing of a loan can ameliorate your credibility. Thus, ensure to opt for a home loan instead of making full cash payment upfront. A home loan in India is one of the cheapest forms of credit options. HFCs and banks both provide attractive home loan rates with a repayment tenure that lasts as high as 30 years.
