Most people dream of possessing a home. It is also considered one of the biggest achievements in life. But, several challenges often stand in the way of us becoming homeowners.
In such situations, home loans are the best option when you want to buy flats in Chennai. So let’s take a closer look at the concept of home loans and the advantage of buying property on home loans.
What is a home loan?
When you borrow an amount of money from a bank or any money lending institution and pay a certain loan interest in the form of EMI every month, it is known as a home loan.
The nature of property can be either commercial or personal. According to the loan agreements, the lender possesses the legal right to sell the property to recover any outstanding loan amount in case the borrower is not able to clear the loan.
Home loans can be of various types, depending on its purpose such as-
- Home improvement loan: loan issued to cover costs of repairs and renovation of your home.
- Home purchase loan: loan issued to purchase a home.
- Home construction loan: loan issued to build a new house.
- Home extension loan: this loan is issued when a borrower wants to add some more living space in his or her house such as a room, or bathroom or kitchen. A home extension loan also comes in handy when you want to add another floor to your existing house.
- Joint home loan: this home loan allows two borrowers to issue a loan. A common example is spouses applying for a joint home loan.
What are some of the biggest advantages of home loans?
When a loan is managed well, it is the ultimate gateway of our dreams. A home loan is a tool that works for everyone irrespective of their financial capability. There are some benefits to a home loan. Let’s take a look at them-
1. Home loans are a great opportunity to grow your funds
For the sake of understanding, let’s think of a scenario. Suresh has the capability of buying a house with his funds. However, experts advise Suresh to opt for a home loan to avail tax benefits. Suresh can now invest his funds while buying flats in Chennai and get an attractive return along with him becoming a homeowner. According to the current rate of floating interest rates for home loans rates, credit score, loan amount and tenure, Suresh can expect the interest rates to be somewhere between 7.9 to 8.3 per cent per annum. As these record-low rates have been doled out by the RBI, it’s a great opportunity to buy property on a home loan.
If Suresh has to pay an approximate amount of 3.5 lakh (at an approx. rate of 8 per cent interest) every year, he will be able to exhaust this amount by availing the tax deductions under Section 24 and Section 80 EEA. This is categorised Suresh within the tax bracket of 30 per cent and he will be able to save a considerable amount of 1.5 lakh. The counter effect of this smart decision would invariably lower the rate of interest to 5.6 per cent (approximately).
2. Liquidity benefit
If you run into a financial liquidity crunch and seek a personal loan or a collateralized loan, you will have to pay a higher rate of interest in comparison to a home loan’s interest rate.
In such situations, you can issue a home loan to buy flats in Chennai and avoid the liquidity crunch. Your funds will help you sustain yourself and meet other financial goals.
3. Due diligence
Banks conduct a mandatory check or due diligence every time before approving a loan or financing any project that helps to reduce risk to a great extent. The process of audit involves verification of project-related documents, legal clearance, and title. So whenever you are applying for a home loan from any bank, be assured that the project has already been approved.
4. Capital appreciation
One of the biggest benefits of buying a house is capital appreciation. Mannivakkam land prices have seen a great boom in the past five years and bloomed as a great investment option. So if you buy a house calculating the steady increase in Mannivakkam land value, buying a house through a home loan to cope up with the inflation is a great opportunity.
5. Buying a house vs renting a house
Even when compared to renting a house and buying one with the help of a home loan, the latter makes more sense. Consider the example of Vinod buying a house at the age of 26 right after getting a permanent job. He opted for a home loan of Rs 30 lakh at 9 per cent interest per annum which he is to pay back within a tenure of 25 years.
Rishi, on the other hand, chooses to live in a rented apartment and interests all his savings in a savings bank account at 8 percent interest.
Vinod will be able to avail of tax benefits, own an asset and grow his wealth while paying off the loan by the age of 50, and still end up with more wealth. Unlike Rishi who will face an annual increase of rent at 10 per cent per annum.
To simply state, buying a house by opting for a home loan is one of the best decisions you can take. It will help you to make your dream of owning a home come true.
