Home Loan or Cash Payment: Which is Better?

Historically, home loans have been an obvious choice for middle class borrowers when they decide to buy a house. But every time one starts looking for one, a nudging question presents itself – is it smart to opt for a home loan or is it better to wait and first save up the funds required and then buy a house? The decision hangs on a lot of factors such as the home buyer’s age, income, current/future financial obligations, current financial status and buying intent (personal use or investment), to name a few.

Now, one cannot argue the advantages of paying for a house using your own funds.

i)  Firstly, the stress-free living when you’re dealing with no EMIs to pay.  

ii) Then, of course the fact that you’re actually saving a considerable amount, more than 100%   of the original property value (during purchase) in interest when you take a loan for a 20 year tenure.   

iii) Thirdly, you won’t have to deal with the hours of paperwork involved. 
 

Although true that when you purchase a home with your own funds, you’ll be saving on years (and maybe decades) of EMI payments, however, you should not get carried away and do it at the risk of depleting your retirement savings or emergency funds. A  digital loans platform like Fincity will help in finding you the best home loans at the lowest interest rates (as low as 7.2%).The best part, you’ll get your loan sanctioned and disbursed in 10 minutes at zero cost!    

It may not appear so from the surface, but if looked closely, there are some undeniable benefits of opting for a home loan to buy a house. 

i) Firstly, according to tax benefits stated under Section 80C of the Income Tax Act, you can claim up to Rs. 1.5 lakh deduction for a self-occupied property funded by a home loan. You can additionally claim deduction (up to Rs. 2 lakhs) on the interest component of your home loan EMI. Both of these together deliver a high quantum of tax savings.  

ii) Secondly, you won’t lock all your savings into one single investment, sacrificing your liquidity.  

iii) Thirdly, it allows you the chance to invest in a bigger house or choose a better locality. 

iv) Fourthly, timely repayments of loan helps increase your credit score and therefore creditworthiness, making it easier for you to get loans and credit cards in the future. (Check your current credit score here) 

Credible financial experts strongly recommend diversifying your investment portfolios, and refraining from locking all your savings into one asset. Make an assessment of how your money can be best used to reap maximum long-term benefits. Plus liquidating your property investment by selling it is a time-consuming one that won’t give you the best returns if done in a hurry.   
 

Therefore, if you have the funds to invest a good portion of it in a property without affecting liquidity, you should definitely purchase a home without a home loan. Otherwise, you should allocate a portion of your funds to property purchase, and the rest to a number of other investments, and pay off the remaining amount with a home loan.

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