June 19, 2024

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The Advantages Of Taking A Home Loan In India

4 min read

If there is one debt that your parents and financial advisors will encourage you to take, it is the debt to buy a home. With rising property rates across major metros, it’s difficult to buy a home through simple savings. This is where a home loan in India comes into the picture. Home loans are often looked at with a considerable amount of anxiety. They are the biggest liability for most middle-income families. Also, when you consider the large loan amount and the extended repayment tenor, people generally tend to think twice about taking a home loan. However, home loan in India can be a crucial investment opportunity, offering critical benefits for investors. Below, we list some of the benefits of availing a home loan.

1. Lowest Interest Rate Loan

If you compare a home loan to any other type of credit or loan, you will realize that home loan interest rates are easily the lowest. If we look at the current home loan interest rates, you can easily avail of a home loan with interest rates as low as 8.5%. When comparing with other credit products like a credit card, you will find that interest rates are close to 30% per annum or more, which is comparably much higher.  

Credit ProductsInterest Rate
Home Loan8.5 – 10.75%
Car Loan12 – 15%
Credit Card30 – 40%
Personal Loan15 – 22%
Business Loan12 – 16%

When it comes to paying off credit, it is best to start by picking forms of credit that charge the highest interest rates. As per the table above, credit cards charge the highest interest rates, and should be the first one you should close as early as possible. This is followed by personal loans and then car loans. Home loans ideally should not be foreclosed unless you have a surplus amount in cash.

2. Home Loan Tax Benefits

Principal Repayment: One of the major benefits of continuing with a home loan are the tax benefits under Section 80C of Principal Repayments. Borrowers can enjoy tax exemptions up to Rs. 1.5 lakh for payments made towards their home loans. If your principal repayments do not reach or exceed the Rs. 1.5 lakh limit, you can use other investments like PPF and mutual funds to fill in the gap.   

Interest Repayment: Another tax benefit that you can claim from your home loan is the interest repayment under Section 24. You can claim this tax benefit under “loss from house property”. This is regardless of whether you are living in this house yourself, or have given this property up for rent, which you will have to show as “rental income”. The limit for loss from the property is Rs. 2 lakh per annum. If you have a balance loss that is lower than Rs. 2 lakh, this balance can be carried forward to the next financial year.

3. Higher Return on Investment (ROI)

To understand higher ROI, you must first understand the dynamics of real estate investment. Property values have appreciated over 250% over the last ten years. As a rule of thumb, most residential properties appreciate 15% at a minimum.

To understand this, let’s look at an example.

Abhishek bought a house for Rs. 50 lakh in January 2020. He made a down payment of Rs. 10 lakh and the remaining Rs. 40 lakh is borrowed as a home loan from a renowned bank. His monthly EMI for the house is Rs. 26,500. As per the market appreciation, Abhishek’s house is worth 15%+ in January 2021. The new market value of his house is now Rs. 57.5 Lakhs. Abhishek then decides to sell the house after one year. At this time he has made interest payments towards his home loan amounting to Rs. 3.2 lakh. Considering that he sells his house at the market value of Rs. 57.5 lakh, this means that Abhishek made a return of 43% for his investment.

The high returns in real estate, and the lower interest rates that home loans levy makes this form of investing a great mid-term capital gain investment, with attractively high leveraged returns.

4. A Sense of Accomplishment

Taking a home loan will undoubtedly be one of the biggest investment decisions you are likely to make. The large investment value brings with it a strong sense of accomplishment. Taking a home loan will ensure that you are investing for the future, and a stable environment where your children can get the right nourishment and the right upbringing. All this would not be possible without a home loan.

Final Thoughts

With the points mentioned above, it is quite clear that a home loan in India offers a number of benefits to borrowers. So, if you are thinking of applying for a home loan, consider the home loan benefits when you make your decision. Also ensure to use a home loan calculator and conduct sufficient research in advance about the different lenders, and their track record. Finally, before you sign on the dotted line, don’t forget to read the finer details of the loan, and make an informed decision.

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