It is a desire of everyone to have a home but not everyone is that fortunate to get home on his own. In this situation, we all need some kind of financial aid to buy the home, we all plan for. Even some of those who can get home without any external financial support mostly get a home loan.
There are some perks as well as disadvantages associated with home loans. In a nutshell, you can say that home loan is a blessing in disguise.
Before going to the advantages and disadvantages of home loan, let’s first understand what it is?
What is a home loan?
A home loan is an amount of money that an individual borrows from a bank or money lending company at a certain rate of interest to be paid with the EMI every month.
Now you all understand what a home loan is. Usually getting a home loan is a good idea. However, sometimes it can be bad.
To understand when a home loan is a good idea and when it is bad. Let’s discuss the advantages and disadvantages of home loan.
Disadvantages of home loan:
The actual cost of the property
Principal component paid during initial loan years is very small with respect to interest in total. Higher interest rates decrease the property appreciation.
Loss of HRA Component
One of the major disadvantages of Home Loan is the loss of HRA component if the property is self-occupied. It is mainly applicable for people with a high salary.
Home Loan is Long Term Commitment
If you have any major financial goal lined up in the next 8 – 10 years like kids education or marriage then the Home loan is going to be an obstacle.
Volatile Interest Rate Movement
Interest rates of banks are volatile in the sense that it depends upon the market’s condition. If the market is performing well then your interest rates will be less and if not then the rates will be high.
Advantages of home loan:
It’s a Good Investment
Home prices can go up and down in a short-term. However, if you stay in your home for a long time, it could increase in value and give you a substantial return on your investment.
You Build Equity
When you subtract the amount you owe on your home loan from the total value of your house, the amount left over is your home equity. The great thing about the home equity is you can also apply for different loans against it.
You Enjoy Significant Tax Deductions
Owning a home can reduce the amount you pay in income taxes each year.
You Build a Strong Credit History
When you buy a home on home loan and regularly make your loan payments on time, it increases your civil score also it shows other lenders that you are a good borrower. The strong credit history makes you more eligible for getting more loans in future.
To be honest, home loan is very subjective. We cannot say that it is simply just good or bad. It depends on lots of external factors. So, get some expert’s advice before applying for a home loan.