Buying a home is one of the most significant financial choices you will make in your life, and a home loan application may make it much more significant. A house loan can be a major obligation for an average middle-class individual because it lasts for many years.
You must first analyze and assess all aspects of your finances before choosing whether or not you can afford to take out a loan to be able to pay back the debt for such a long period.
THE BENEFITS OF A HOME LOAN
- ENSURES THAT EVERYONE CAN AFFORD TO BUY A HOME
The house loan makes it more affordable for an ordinary middle-class paid individual to own their own home. Lenders in India approve or deny house loan applications based on the applicant’s credit score as well as their capacity to repay the loan.
Lenders will rapidly accept your home loan application if you have a steady source of income and the ability to repay the EMIs (equivalent monthly installments). Furthermore, house loans often have a lengthy term, ranging from 15-20 years, which means the EMI is less and more reasonable. As a result, you may enjoy the joys of homeownership by taking out a loan.
- AN EFFECTIVE METHOD OF GETTING CREDIT
One of the most significant advantages of a house loan is that it has a lower interest rate than other types of borrowing, such as a personal loan or a gold loan.
- HOME LOAN INTEREST RATES
Home loan interest rates are the lowest among other forms of loans, and while they vary depending on the lender, they typically range from 8% to 12%. Make sure you select a lender that offers the best interest rate on the loan; even a small variation in the interest rate might save you hundreds of rupees over time.
- ENSURES THE PROPERTY’S SAFETY
Purchasing a house is a once-in-a-lifetime investment, and you’ll want to be sure the property you choose is free of legal difficulties. This is where obtaining a house loan may be beneficial. When you apply for a home loan, the lender will do a thorough investigation of the builder’s trustworthiness as well as the property itself. They will examine all of the property’s paperwork to confirm that the structure is lawful and that the builder has gotten all of the necessary clearance certifications from the local authorities.
- GROWTH OF THE CAPITAL
The cost of real estate in India has constantly increased over the last several decades. According to many analysts, the capital appreciation of real estate holdings has been far more than the home loan interest rate you pay.
DRAWBACKS OF A HOME LOAN
- SIGNIFICANT COMMITMENT.
When a lender approves your home loan application, you are making a significant long-term commitment. A house loan typically lasts between ten and thirty years. This implies that you will be in debt for a large portion of your life. You must be prepared to restrict your spending and focus on repayment once the loan is in place.
- A HOUSE LOAN MAY INVOLVE RISKS.
The average house loan lasts between 10 and 30 years, which is quite a long period. Divorce, sudden sickness, job loss, or an accident might throw your finances into disarray and impair your capacity to manage the loan’s load. If you don’t pay back the loan, the lender has the right to seize and sell the property to recoup the money provided as a house loan.
- TAX BENEFIT ON THE HRA COMPONENT IS GONE
Employees get a Housing Rent Allowance (HRA) as part of their income from their employers. Employees can claim a tax deduction for the rent they pay for housing through the HRA. To be eligible for the HRA tax credit, you must fulfill the following criteria:
- You must live in a leased property in the city where you work while also owning a home in another city.
- Your house is being built or redeveloped, and you’ve hired a place to live while the building is finished.
As a result, if you live in your own home, you will no longer be eligible for the HRA exemption, and the whole amount will be deemed taxable income.
- INVESTMENT OPPORTUNITY LOST
Among the most ignored downsides of a house loan is this. When you apply for a loan, regardless of how large or little the loan amount is or how long or short the repayment period is, you forfeit the option to invest the same amount in an investment instrument that may provide you with excellent returns. Consider how much money you may save by investing in mutual funds or a fixed deposit instead of paying EMIs.
With the aforementioned ideas in mind, it is evident that house loans offer both benefits and drawbacks. So, if you’re considering getting a house loan, weigh the benefits and drawbacks before making a final choice. Make sure you do your homework on the various lenders, as well as reading the finer points of the loan, and make an informed decision so you don’t wind up regretting your decision.