Buying a house is a big step. It is a source of anxiety, frustration and a huge sense of accomplishment. With the zooming property rates, it is difficult a buy a house through our savings entirely. Almost all of us have a to avail a house loan. Usually, a housing loan is one of the biggest liabilities. Considering the huge amount and the long tenure involved, however your house loan also offers you some benefits. The below write-up highlights the advantages of taking a housing loan.
Sense of accomplishment
Buying a house is one of the biggest financial investments you may make in your lifetime and that's not just because of the sentimental value. The sum that most of us sink into our house does make it the largest component of our investment portfolio.
Capital Appreciation
For each one of us who has seen property prices boom over the last five years, the prospect of mouth watering capital appreciation is the biggest argument for buying a house. Construction costs alone, which account for more than 70 per cent of the flat's cost, have risen at 15 per cent annually in the past decade. Rents too seem to keep up with inflation making a house one of the few investments can shield you from inflation for the long term.
Low interest rate
Buying a house is a long-term decision of over a 10-year period the interest rates may go through several up and down cycles. Therefore, you can be sure that you will benefit from falling rates at some point in the cycle.There could also be situations in which the interest rates fall, allowing you to prepay your loan and own your house. For instance, those who bought property in 1995, at an interest rate of 18 per cent, not only saw interest rates fall dramatically over the next decade, to bottom out at about 7.5 per cent, property prices too appreciated steeply. This works as a double boost to wealth.The best way to manage borrowing costs is by actively managing your housing loans.That’s not as difficult as it is sounds. Banks and housing loan lenders often give new borrowers much better rates than existing borrowers. During the uptick of the interest rate cycle, if your cost of borrowing increases by more than 2 percentage points, pay 0.5 per cent of the loan outstanding as processing fee (conversion charge) to your lender to avail the rates offered to the new borrowers.
Tax Benefit: Interest paid
As per Section 24(b) of the Income Tax Act, 1961 a deduction up to Rs. 1.5 lakhs towards the total interest payable on the house loan towards purchase / construction of house property can be claimed while computing the income from house property. (The deduction stands reduced to Rs. 30,000 in case of loans taken prior to March 01, 1999).The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.
Tax Benefit: Principal Repayment
As per the newly introduced Sections 80C read with section 80CCE of the Income Tax Act, 1961 the principal repayment up to Rs. 1 lakh on your house loan will be allowed as a deduction from the gross total income subject to fulfilment of prescribed conditions.
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