Why home loan?

Protection from future price increases

A home loan is an instrument that helps you buy residential property at today's prices rather than waiting until you've saved enough and then buy at typically a multiple of today's property prices.

Peace of mind

Peace of mind cannot be quantified. And there are very few people who would prefer to keep staying on rented property all their lives. What happens when income ceases after retirement? Why invite the unnecessary burden of rentals post-retirement? And hence, most people purchase their own property during their working lives. For many, paying EMIs means owning your own home at the end of the loan tenure while paying rent means owning nothing in the end.

Establishing a credit record

Also, as you pay your EMIs on time, you create your track record of being a responsible borrower. Which means you can seek substantially lower interest rate (and hence lower EMIs) a few years into your loan tenure. Quite simply, your new credit profile would want many banks to entice you to transfer your outstanding loan balance. This pressure itself can force your existing lender to reduce rates - often at the end of a simple phone call.

Tax benefits

Moreover, there are several tax benefits available on loan repayment that you may become eligible for depending on your specific income bracket. You can claim deduction on home loan interest up to Rs 2 lakh under Section 24(b) and tax deduction on the principal repayment up to Rs 1.5 lakh under Section 80C.

Subsidy

And now, there is also a home loan subsidy. Under the Credit Linked Subsidy Scheme (CLSS) of the Pradhan Mantri Awas Yojna (PMAY), eligible borrowers can avail a home loan and save up to ₹ 2.67 Lakh

Prepayment flexibility

Today's home loans also offer great flexibility. You have an option to pre-pay your outstanding balance (or a part of it) when you earn a higher income - thereby reducing your loan tenure.

Risk assessment opinion

While one must always do one's own due diligence before purchasing any property, when one applies for a home loan, one gets a helping hand from the bank. RERA has reduced risks of buying under-construction property that has a RERA registered number but the risks are not completely eliminated and depend at least partly on the builder's financial position. Who better than a seasoned bank to lend a helping hand in assessing these risks?

Most likely avenue to leverage

Unlike companies, individuals have limited avenues to leverage their future income and use it for making other investments (stocks, bonds and other assets). Often the best option is to seek a home loan. Because the purpose here is to borrow money for one's family to stay in a home, banks perceive a significantly lower risk of default and hence give their best rates. This is also why home loans are substantially cheaper than loan against property (whose purpose is often unknown).