Should you take Home Loan
Loans are a bit skeptic thing in Indian terrain. In the old days, people use to pledge their precious belongings for a small loan amount to meet their dire needs but was never able to gain back their belongings even after years of payments.
People with old mindset would say, one should never opt for loans, whereas in the west, everybody is living off credit.
With time the loan terms have changed now, and people are more aware and have become intelligent to use loans to their benefit. So, let’s understand the science and different school of thoughts behind taking a loan.
Then you may choose and make an informative decision on whether to take a loan or not.
Understand the Cost of Loan
When you take a loan, then you not only have to pay back your principal amount, but you also must pay back the associated interest.
However, Home loans are one of the cheapest loans available in India but still, there is a cost one need to pay for it.
On an average over a period of 20 years, you ought to pay around 130% of the money back to bank what you have borrowed now.
But there are various other options to lower your home loan payout, like Pradhan Mantri Awas Yojna.
However, to avail this you need to be the buyer of your first house. This tends to further reduce the home loan rates for first home buyers in our country and is applicable as per the income bracket you fall in and the house you are interested to buy.
Loan helps maintain your liquidity
Homes are not an easy affair. Sometimes people must spend their entire earnings to buy their dream house.
Taking a home loan would ease this burden where you pay some amount in equated monthly installments rather than must scrap all your savings and be left with nothing other than a house at the end. Also, with time the value of your house tends to increase and there are various other fiscal policy changes which you could benefit by getting your loans refinanced and/or negotiate with your bank.
A loan may also help you buy a much better house which you may not be able to afford only through your savings in current time.
Understand the concept of ‘Value of Money’
With an inflation rate of around 4%, everything ought to become expensive with the time.
Now what you can buy today for 100 rupees, you would not be able to buy the same thing in the next five year for the same amount of money. The land is an asset that always appreciates over time.
However, the value of your money will always decrease over time. Taking a home loan to buy your dream house today would be a vice decision as you will be at a better position at the end of your loan tenure.
This is because, at the end of say 20 years from now, your house value would have appreciated 100 times (looking at current trend) and the value of money would have gone down 50 times.
So, by keeping your current money, it’s very difficult that you will be able to buy the same property in the next 20 years.
Plan your investment
I would suggest hiring a financial advisor to help you with the home loan procedure. Or else you must survey the market to get the best home loan rates.
Also, don’t forget to negotiate over the rates and loan fee with your banker. Then understand different home loan products and their pros and cons before investing in them.
You might also be eligible for some sort of waivers depending on your job and income bracket, don’t forget to ask about them from your lender.