Hello,
I am thinking to buy an apartment for around 60~80 lacks. I am thinking to pay all from my pocket but my friends are suggesting to take partial home loan for tax benefits. Will be be advisable to take a loan even if one have money to pay it from his pocket.
Should take home loan or not
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1 Answers
There are different parameters to decide upon whether loan has to be taken or not.
Peace of mind: If you don't take loan, you will have peace of mind. You can take some riskier decisions in life (like job change, starting your own business) without thinking about how I will pay EMI.
Return on investment Vs Income tax benefit on home loan: If you take loan, where do you intend to keep your money. If return on such investments is more than effective rate of interest on home loan, then it makes sense to take loan and invest your money.
Say you take home loan of 50 lacs @ 10% Rate of interest, EMI will be around 50,000 per month. Maximum interest amount deduction will be 1.5 lacs p.a. Maximum tax saved will be 45,000 per year.
There will be more interest paid in initial years and out of that most of the amount will be taxable (because of max 1.5 lacs limit). If you decide to prepay loan after few years, you will be loss as you will have to pay most of the principal back.
Safety amount: Don't spend all your money in buying home. Keep some safety amount liquid for some unforeseen events. If needed, take loan for a small amount say 15-20 lacs.
Near future needs: If you planning for some near future expenses like buying a car, foreign vacations tour and home appliances, then keep a separate amount for them before buying home.
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