Is It Wise To Buy A Real Estate Property On A Loan?

• @kw
• 18 Sep 2020

The economic situation after the pandemic due to Corona virus has raised several issues to tackle. The slowdown in economy has resulted in lowering down the bank interest on home loan to stimulate the market. The rate of interest in home loan is around 10.5% per annum on reducing balance on the contrarily the inflation rates are surging up and now hovering around 7% thereby spiraling the market value of properties to match up with the rising inflationary rates. It is beneficial to purchase real estate property on bank loan. If we calculate, it will be found that by purchasing a residential of commercial property if purchased on loan, a person can ultimately earn profits on borrowed money from bank considering that the rate of Bank interest is fixed at 10.5% PA. Iinflation rate on an average is 7.5% P.A the rental income is as per the market and keeps increasing to keep pace with the inflationary rate and maximum up to 10% P.A as per the market practice. As a tenant you were paying the rent, which will save, but for all calculations, you should account for it. You also get Income tax benefits on your EMI payment. It will be seen that after a certain point of time your property becomes absolutely free, you will be the owner of an asset and you will keep milking profits from your smart decision.

A home is just not an object made of four walls, it is well though investment for life that is your hidden emotions and symbol of status and accomplishment. Buying a home is one of the biggest financial transactions in one’s life especially among the average Indian family.

Is it a wiser decision of owning a home than living on rent?

1. As an owner of the home, you are in total control of your property. You don’t have to think about any hassles from land lord. As a tenant there is always a mental pressure of arranging rent payment every month within a fixed date. Your dependency on lord for every move of your may be quite frustrating at times.

2. You provide a complete emotional security to yourself and your family by owning your own property. After all, there is no place like ‘home’ where you can be truly at ease and just be yourself. By owning your own nest, you can plan interior as per your wish.

3. As a tenant you enter into a lease agreement for a certain period which can be terminated by the land lord for any reason of his or her choice. In your owned home there is no hassle for renewing the rest agreement every year and renegotiating on rent repeatedly.

4. Rent is an expense while your EMI payment is an investment. When rent goes up substantially, you may be forced to go for cheaper options and compromise with size and location of the house creating a demoralizing effect to you and your family.

5. Due to easy financing options one should not delay the process of taking housing loan. If you take housing loan at an early age, your home becomes unencumbered before your retiring age.

6. Under section 80 C of the Income Tax Act, you get a deduction for the principal (of the loan) repaid up to Rs 1.5 lakh a year and the interest paid is deductible up to Rs 2 lakh per annum under section.

7. Buying a house is to build your own asset. Effectively, with every EMI that you pay, your equity in your home goes up.

8. Owning a home increases your social status increases you and your family’s self esteem. Your wealth and status is measured by the home you own. Thus, by buying a house, you can enhance your social status significantly.