29-Jun-2021 | Home Loan
Home is one of the basic necessities for all and to own one is actually a dream for every Indian. Home is not just a structure with four walls and a roof; it also comes with an emotional side attached to it. For some, it may be about a sense of security, comfort, and accomplishment, while for others it is about being independent and carrying a status in the society.
But on a candid note, buying a home is no small expense. In the context of Indian society, the decision to buy a home is not only a major decision and a milestone in one’s life but also the biggest financial decision to make. Since it requires a huge expense and a big financial commitment, one may feel that why not choose the option of living on rent – it is a better fit.
The debate goes on – buy a home or rent a house –which one is better? It is difficult to choose from these two options.
Owning a home always gives you greater freedom, for the way you live and how exactly you have dreamt of living within one. There are multiple options of buying a home – you can buy a ready to shift home, and you may go on to purchase a plot and construct a home over it. Renting a home will always invite certain compromises like location, size, amenities, etc. For spending your life, for sure you would look for freedom within your living space.
Purchasing a Home provides added security, privacy, and comfort not only to you but also to your family. The fear of untimely termination of the rental contract, infringement within the private life from landlords is automatically taken care of when you own your home. Additionally, the decision to change or remodel/renovate, extend, utilise the space as per your choice (covered and open both), is always with you and your family – there are no permissions required, but when you are renting you are dependent on landlords consent –even to hammer a nail in the wall. And it means – when you own your home, you are your own boss!
One big reason why people do not go for buying a home, is skyrocketing and fluctuating prices of real estate. However, when you opt to buy a home by availing a Home Loan, you get entitled to avail Tax Benefits on the Home Loan Principal and Interest you payback. These benefits basically add-up to an affordable deal, in owning your home.
Times have changed. Today, a lot of easy financing options are available in the market. Apart from banks, there are multiple financial institutions that provide loans. Housing Finance Company(s) like Aavas Financiers Ltd. provides up-to 90%*of the cost as Loan to prospective buyers, which means that the down payment is not heavy on your pocket and easy to arrange.
On the other hand, you don’t get any such benefits when you live on rent. The entire money you pay becomes your expenditure, which increases with time.
From the above perspective let’s see what all benefits you get when you opt to buy a home by availing a Home Loan– You get Tax Benefits, the amount paid to buy a home with interest is fixed, however, with time the Property Value appreciates and the appreciation is much more than inflation rates.
In return to what you pay as cost and interest on your home loan – what you get is the property, but the rent paid never gives you any return. They are expenditure which keeps on increasing with every passing year, as per the terms of Rental Agreement.
Let us understand this with an example here – assume that there are two houses each costing 15 Lakh Rupees
Rent a property: You will have to pay some amount as rent every month. Assume you are paying a rent of Rs 7,500 per month, which increases every 11 months at the rate of 8%.
Buy a property: You will have to take a loan, which will cost you Rs 13,000 per month as EMI for 20 years, and also you pay a down payment of 5 Lakh Rupees from your side.
While it appears that if you are staying on rent, you save Rs 5,500 per month and above that, you have to shell out 5 Lakh Rupees as a down payment – which you could have invested in a SIP or any other scheme of your choice. However, when you analyse in detail, you will find that the gap in the EMI v/s rent ratio increases with time. Let us see how
When you are paying Rs 7,500 as rent per month, in the 12th year of living on rent, your rent will increase to Rs 17,487 per month (consider 8% increase per annum). This now becomes more than EMI of the Home Loan if the Property was bought and will continue to increase till the 20th year.
But when you are paying an EMI for buying the same home, you will also get income tax benefits on interest and principal paid during the financial year if you are a taxpayer. In addition, the property value after 20 years will be appreciated many fold, whereas the amount saved by you living on rent will be more or less equal to zero.
Owning a home is not as difficult as it seems. You simply need to plan it wisely and go for it. Aavas Financiers Ltd is a leading housing finance company that has helped lakhs of customers in fulfilling their dreams of buying their dream homes.
We at Aavas firmly believe that every individual who wishes to have a home should get an opportunity to own it, irrespective of his/her financial status. And that is why we provide housing loans to customers in low- and middle-income segments in semi-urban and rural areas too.
Very useful information, helped a lot to know about home loan