Loan or Savings – How to Pay for a New Home?

Owning a home provides security as well as a sense of accomplishment for many. Mostly, a first-time homeowner can relate to multiple discussions across various spheres and comprehensive research. However, one of the essential requirements for the purchase of a new home is the availability of adequate funds. Traditional financial experts would talk about saving for your home, but the rising inflation has led many to adopt home loans as a regular practice. Let us understand the comparison using the below considerations:

The middle-class dream

Undoubtedly, you can say that buying a new home is one of the most valuable financial investments one can make in their lifetime. The middle class considers purchasing a home as one of the most significant achievements in a lifetime. However, it would take long to save considerable funds to buy a home while you can avail housing loans based on your income capacity in a shorter period.

Improvement of credit history

housing loans
housing loans

If you avail loans, your credit score will improve substantially. Having a good credit history is necessary regardless of your financial situation. Through repaying a home loan, you would typically have a credit history over time by making prompt payments to your creditor, thus enhancing your credit score. If you keep paying your monthly/annual payments on time, your credit score will continue to improve. Timely repayments show lenders that you are a financially responsible individual.

Appreciation of asset

If you buy a house by way of a home loan and pay off the mortgage, your property could be worth more than the total price. Despite slow growth in real estate, people are still buying/selling properties which would increase in the future as well. Therefore, your investments will remain unchanged, and you will also be protected from inevitable inflation in the future.

Contingency funds

You do not want to exhaust your entire life savings to purchase a new home. Instead, it would be best if you kept it as a contingency fund. The housing loans help you to live stress-free in your own home when you think about having funds set aside for times of crisis. You only have to fix monthly budgets to pay back the balance of the home loan to ensure that EMIs are paid without fail.

Tax Gain

There are two forms of tax incentives available on a home loan – one on the repayment of the principal sum and the other based on interest payments. Principal repayment allows you to make use of deductions for the cost of the actual borrowing amount as per Section 80C of the IT act. Note that the deduction does not surpass Rs. 1.5 lakhs in the financial year.

Conclusion

Based on the above considerations, home loans have a clear advantage over savings to buy your first dream home. You have a choice between fixed or floating home loan interest rates depending on your choice. Make sure you use the online home loan interest calculator based on your criteria to get an estimation of the EMIs and schedule your repayment accordingly.

 

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