Buying a house is not a child’s play. A huge investment requires a meticulous thought process, financial balance and robust decision-making power. So, when it comes to financing the property, it could be a tricky decision. Should you spend your cash or opt for a home loan?
If you have been thinking about purchasing a house, you might have faced this dilemma. Scroll through for some information below in order to aid you in effective decision-making.
- Sole ownership – When you pay through cash, the sole ownership is with you. No bank or financial institution has any stake in your property.
- Negotiation – Typically, you are in a better position to negotiate when you have cash. You also save money, as there is no interest cost to be borne.
- Your savings can get blocked – If you buy a house through cash payment, a major portion of your liquid funds could be blocked in a single asset. It can reduce the chances of diversification.
It is recommended to buy a home through cash payment only when you have ample amount of funds to meet any emergency or future expenses. Making cash payments should not jeopardize your budget, investments or liquidity.
- Tax benefits – Through a home loan, you can enjoy tax benefits and save money. When you avail a home loan, you can claim deduction of up to Rs 1.5 lakh on the principal repayment and up to Rs 2 lakh on the interest payment from your income under the Income Tax Act, 1961. Additionally, you can also claim a deduction of Rs 50,000 on the interest from your taxable income, if you are a first time home borrower.
- Improves credit score – Through timely repayments of your home loan EMIs, you can improve your credit score. A good credit score can help you avail loans in future at better terms.
- Liquidity – When you take a home loan, you are not usually bound by the amount of cash in hand. With a home loan, you can purchase a better house in a better locality. Additionally, availing a home loan leaves you with liquid money for other lucrative investments, aiding diversification.
A home loan can be an added debt and put pressure on your finances. In addition, as the repayment amount includes interest, you could be paying more than the cost of the house. However, with flexible repayment, you can opt for comfortable EMIs and repay the loan.
It is imperative to consider different aspects such as your age, financial condition, existing liabilities, intent, etc. while taking the decision. Experts opine that you should also consider your long-term goals and needs while choosing between the two. Paying through cash could seem like a cheaper option, but it can hamper your liquidity and retirement goals. Therefore, consider the pros and cons of both the options carefully and accordingly make an informed decision.