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There are people who are unable to arrange the funds for their down payment and there are people who are blessed to pay for their homes in full in cash. Finding a right property that fits in our budget, further bank and its paperwork and EMI’s for the repayment of the loan seems to be a dream and a blessing too. Since the interest is being paid in case of borrowing a home loan, you should avoid taking it. But, property experts and the experts from financial industry hold a different opinion for the same. So, even if you are blessed to buy a home and can afford to pay in cash, read further to know why or why you should not do it.
The first point to start in this process is to calculate the amount you would be saving with buying a home in cash as well as a time based loan repayment. The buyer has to compare the sticker price and the actual price of the property if paid with a 15-20 year mortgage loan with a down payment of 20%- 25%. No doubt, if paid in cash, you will be saving money on interest but it will be a good idea to calculate the loss that you will bear as a mortgage interest deduction when it comes to tax time. Also the buyer should consider what paying in cash will do to your savings – retirement, medical emergency or any other short term need.
Benefits on taxation can be availed on home loans. Rs. 2 Lakhs can be claimed as a deduction on interest under section 24 of Income Tax Act, if the property is self occupied. In case of rented property, the deduction of income tax includes 30% of the rental income, municipal taxes and the interest paid on the home loan. The taxpayer can reduce and set off the liability of loss from house property from the deductions that makes the rental income zero or negative. A deduction of 1.5 lakhs can be claimed on the principal repayment under section 80C of IT Act.
A real estate investment is not only considered as a life time commitment, security but also a huge investment. This big or huge investment might lock your funds in case of cash buying. Experts advise of not using the complete sum of funds at one place and make sensible decisions to use it. However, investing in real estate is a god choice, but it will never give you results like bonds, mutual funds etc.
The regular and on time repayment of loan through EMI’s have a great impact on the credit score. It not only improves the credit worthiness of the borrower but also creates the ways for future loans as well as credit cards.
If the money is paid up front, there can be chances to avoid better options as the budget gets restricted to the amount we have. Borrowing a home loan increases the chances of opting for better options of properties at better locations. You believe it or not but yes, home loan is a cheapest form of debt in India being offered by Banks/ NBFC’s and other financial institutions at very reasonable and attractive interest rates. Borrowing a loan is also a safest way of not compromising on one’s liquidity.
If you actually have the money available in hand, it will never let you go in debts and in case of any emergency, you are most likely to save by not paying any interest. You will also be avoiding a lot of paperwork trail and the costs that comes along with the loan.
Your credit history has nothing to do in it. So, it will be quite beneficial for you even if you had jerks in past credits or had run into a trouble before and still have considerable savings. You always have equity available at home that you can always tap in case of any emergency or tough financial situation. Furthermore, you will only lose the money that you will put in to buy the property and will not be concerned about the market fluctuations.
Another benefit is basically psychological – having an own house gives a sense of pride and security. Probably you might be an attractive buyer to the motivated sellers. The deal becomes quite simple and fast for both parties and even buying in cash may help you to avail a better deal.
This you can also connect to be a disadvantage. Paying cash to buy the property will tether all your savings or most of the money in one asset. It is important to ensure that you always have sufficient money to be ready in emergency situations. Though, it is not advised to invest the whole fund in real estate or any other investment tool. Rather you should always make an informed decision after analyzing all the above points to pay upfront or to opt for a home loan.
