4 Disadvantages Of Not Taking A Home Loan

Disadvantages Of Not Taking A Home Loan

Taking a Home loan for any purpose is a tricky thing. Some people are averse to loans as they think of them as a burden or restriction. While others take loans for almost everything. The idea of buying and utilizing someone else’s money sounds good to a lot of people. But whether your action of taking a loan is fruitful or not, depends upon whether you are acquiring a liability or an asset.

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A home or real estate is considered an asset for the most part especially if you have purchased it along with the land on which it is built. In India, the real estate industry shall only see an appreciation in values because we are always going to have a shortage of land considering our vast population of 138 crores. Hence, we believe that taking a home loan is a good idea even if you have enough money to purchase it.

HERE WE HAVE 4 STRONG DISADVANTAGES OF NOT TAKING A HOME LOAN

• According to Section 80C of the Income Tax Act in India, you can claim a deduction of Rs. 1.5 lac from your taxable income. Just think, you get to purchase an asset for yourself with someone else’s money and you get a tax exemption on that. Why would you let go of such a double-edged benefit?

• Having a sound liquid cash balance is key to developing a good emergency fund. Even if you had the exact amount to purchase a house worth Rs. 1 Crore, would you really want to spend all of your savings in one go? You would be exhausting your hedge at once. And that isn’t a good idea to live by in these unpredictable times. You must at least take a loan worth 50% to 75% of your total purchase price. In this case, you can take a loan worth 50-75lacs when your purchase is 1 Crore.

• You must be wondering why we are insisting on taking a loan of (50-75) % of your purchase. You can argue- What about the EMIs?  In that case, yes, you will definitely have to pay the interest along with the principal in monthly/yearly installments. The total amount of repayment always exceeds the actual loan taken considering inflation. This is true. But home loans are for longer periods, anywhere from 8-30 years.  In this length of time, the appreciation of your house will always surpass the expense you had to make towards the repayment of the loan. Thus, your income will be more than your expenses.

• You can purchase a house on loan and use it as a regular income-earning asset. How? You can always rent the house to people. The rent also goes up with time and inflation.

Thus, not taking a home loan has its own disadvantages and you must always get hold of the benefits provided by the system.

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