Should You Take a Home Loan Even if You Have Enough Money to Buy a House?

Buying a house is a huge financial decision that should be taken after carefully considering various factors. Normally, homebuyers obtain Home Loans to meet this requirement. However, some individuals might possess adequate funds to pay for the property in full. They may, therefore, prefer to purchase the house with their own savings rather than avail of a housing loan. At the same time, there could be others who may have funds to spare and yet wish to take up Home Loans. The decision varies with people depending on their age, obligations, financial standing and other relevant aspects.  

Typically, the general consensus might be that buying a home without any loan would be advantageous. After all, the property would cost you less, there would be no worries over EMI payments or any legal paperwork. On the other hand, a few individuals may favour the merits of securing house loans even when they have the requisite finances. 

Why Take a Home Loan if You Have Cash to Pay Upfront? 

Before one decides to buy a house, they have two ways to go about it – paying with one’s saved-up cash or through a Home Loan. Here is a look at the various benefits of a housing loan vs cash payment that may make the former a viable financial choice: 

Tax Exemptions on Home Loans 

There are considerable tax savings attached to house purchases initiated through Home Loans. Section 24 of the Income Tax Act allows borrowers to claim deductions up to Rs. 2 lakh on their Home Loan interest, provided the property is self-owned and used as a residence by the owner or his/her family members.  

In case of a rented property, the income tax rebates comprise 30% of the rental income along with the municipal taxes paid on the house and the repaid Home Loan interest. These reduce the overall tax liability by rendering the rental income zero or even negative; while the probable ‘loss from house property’ neutralises other income tax heads. Further, under Section 80 C of the ITA, borrowers can receive exemptions up to Rs. 1.5 lakh on the principal repayment of their Home Loans.  

Also Read: Know all About Top Up Loans and How to Avail of Tax Benefits 

Improves Your Credit Profile 

An absence of credit makes it difficult for lenders to gauge creditworthiness when they assess your credit or loan application. A Home Loan can prove beneficial in building as well as improving your credit score. Every time you repay the loan EMIs by the due date, your credit score goes up. This works in your favour when you need to secure a loan in the future or apply for other forms of credit.   

No Lock-in of Funds 

Since property buying is a big investment, it requires you to set aside significant sums of money. Experts recommend that even if you have the available funds to purchase a house, it is still better to avail a home loan. Instead of allocating a lump sum amount for the house, it may be monetarily wiser to extend a large down payment and pay off the loan principal with hefty EMI pay-outs. This way, you don’t have to stress over high interest rates or loan tenors. Moreover, you can channelise the remaining cash towards diversifying your asset portfolio. Doing so will enable you to optimise the financial returns through different investment options such as stocks, mutual funds or bonds; instead of putting it all in real estate.  

Save up for Emergencies 

Whether one decides to buy a house with cash or take a Home Loan, one must remember to plan for financial emergencies. A job loss, delayed salary, family emergency, medical treatment, or other pressing demands could affect your cash inflow. Having a separate contingency fund aids in pre-paying home loans or paying the EMIs during a financial crisis. It also assists you in generating a corpus for the retirement years.  

Broader Property Options 

When you pay money upfront, you may have to stick to a budget, which could restrict your real estate choices. A Home Loan allows you to go over the budget without compromising on your property options. As a result, you can search for a bigger house in upscale localities that might potentially fetch you higher returns in the near future.   

Benefits of Talking a Home Loan 

Home loans are among the most convenient and cost-effective forms of debt. Most lending institutions extend attractive offers periodically with customised repayment terms to ease the debt burden. Regardless, weigh the advantages of a Home Loan with that of an upfront cash payment for informed decision-making. And, if you need Home Loans to buy a house, compare the different loan schemes in the market to aid your selection. You can also get a clear overview of your expected loan through an online Home Loan Calculator that will enable you to check the monthly EMIs and the complete repayment schedule in a matter of minutes.