As an Indian, having your own home is a dream that you’ve probably had for years now. Buying a home is a major financial decision and takes years of work and upskilling and there are several benefits of home loans.
Homeownership is a cherished dream for many, and in India, it’s often seen as a sign of financial stability and social status. However, the path to owning a home is paved with financial planning and decisions, one of the most significant being the home loan. In this comprehensive guide, we’ll explore the multifaceted benefits of availing a home loan in India, not just from a financial perspective but also considering the socio-economic impact it brings to individuals and families.
But despite any capital you might have, home loans should be the only way you should purchase property. Here are some of the reasons for opting for a home loan.
Introduction to Home Loans in India
Home loans in India are not just financial products but a gateway to achieving the dream of owning a home. With a variety of lenders in the market, including public and private sector banks, housing finance companies, and non-banking financial companies (NBFCs), individuals have numerous options to choose from, each offering competitive interest rates, flexible repayment terms, and additional benefits.
Tax Deductions Under Section 24B
One of the standout benefits of availing a home loan in India is the opportunity to claim deductions on the interest component under Section 24B of the Income Tax Act. For a self-occupied property, individuals can enjoy a maximum deduction of up to Rs 2 Lakhs per annum. This not only eases the financial burden but also serves as an attractive incentive for homebuyers.
Let’s consider a case where the loan amount is 70 lakhs, with an 8.5% interest rate, and a 20-year tenure.
| Loan Amount | 70 lakh |
| Interest payable (per year) | ~ 4 lakhs |
| Tax deduction under section 24B | 2 lakhs / year |
| Tax bracket | 30% |
| Tax benefits (per year) | 66,000 |
Deductions on Principal Amount Under Section 80C
Homebuyers can further optimize their tax planning by claiming deductions on the principal amount under Section 80C. A maximum limit of Rs 1.5 lakhs per annum includes investments and expenses such as PPFs and life insurance premiums. This dual benefit of interest and principal deductions makes home loans a strategic financial move.
| Loan Amount | 70 lakh |
| Principal payable (per year) | ~ 3.5 lakhs |
| Tax deduction under section 80C | 1.5 lakhs/year |
| Tax bracket | 30% |
| 80C tax benefits (per year) | 50,000 |
Therefore, the net tax savings under 24B and 80C comes out as:
1.16 Lakhs Per year
Joint Home Loans for Couples
Married couples can opt for a Joint Home Loan, allowing both partners to claim up to Rs 2 lakhs each on the interest paid and Rs 1.5 lakhs each on the principal repayment. This collaborative approach enhances affordability and encourages joint financial planning.
| Title | Co-Applicant 1 | Co-Applicant 2 |
| Tax deduction under 24B | 2 lakhs/year | 2 lakhs/year |
| Tax deduction under 80C | 1.5 lakhs/year | 1.5 lakhs/year |
| Total deductions | 3.5 lakhs/year | 3.5 lakhs/year |
| Tax bracket | 30% | 30% |
| Tax benefit/year | 1.16 lakhs | 1.16 lakhs |
If we perform a cost analysis here:
Total money saved: 3.32 lakhs
EMI paid/year: 7.2 lakhs
Effective money paid per year: 7.2 – 3.32 = 3.88 lakhs
The joint applicants can claim up to 7 lakhs in tax benefits and save up to 45% in total.
Free Legal Due Diligence
The best advantage of taking a home loan is the free legal due diligence provided by banks and NBFCs. These institutions have strict legal processes to evaluate properties for which they disburse loans, offering borrowers a safeguard against potential scams. This added layer of security ensures a smooth and secure homebuying process.
Government Schemes and Subsidies
Pradhan Mantri Awas Yojana (PMAY)
PMAY is a government initiative aimed at making affordable housing accessible to all. Eligible borrowers can avail of interest subsidies, making homeownership more achievable for lower and middle-income groups.
Building Equity Through Home Ownership
Owning a home is an investment in your future, allowing you to build equity over time. This equity can serve as financial security, offering options for borrowing against it in the future for other significant expenses.
Impact on Credit Score
Timely repayment of a home loan can have a positive impact on your credit score, opening up opportunities for favorable terms on future borrowings.
Lower Interest Rates
Home loans in India come with some of the lowest interest rates, making it a cost-effective financing option. The favorable interest rates significantly reduce the overall financial burden on the borrower, making homeownership more accessible.
Leverage for Affordability
Perhaps one of the most compelling benefits of home loans is the leverage they provide. With the ability to own a property worth crores by paying just 20% of its price initially, home loans drastically improve affordability. This financial flexibility enables individuals and families to step into the real estate market with ease.
The Psychological Benefits of Owning a Home
Beyond the financial aspects, owning a home provides emotional security and a sense of belonging, contributing to overall well-being and happiness.
Conclusion
Home loans in India are not merely financial instruments; they are gateways to realizing homeownership dreams with added financial perks.
If you’re looking for the best home loan deals, Credit Dharma is here to assist you on your homeownership journey. Check out our Home Loan EMI calculators and budgeting calculators to understand your path better! Your dream home might be closer than you think!
FAQs
A home loan is beneficial because it allows individuals to purchase a home without paying the full amount upfront, offers tax benefits on interest and principal repayments, helps build credit history and improve credit score with timely repayments, and provides potential for long-term financial gains if the property value appreciates.
A home loan is good because it makes homeownership accessible for many people by allowing them to spread the cost of a home over a long period, often with lower interest rates compared to other types of loans, while also providing a sense of stability and security by owning your own home, which can be a good long-term investment if property values increase over time.
A home loan can be a good option for tax benefits. As most countries offer tax deductions on the interest paid on home loans. This means that a portion of the interest you pay on your home loan can be deducted. From your taxable income, effectively reducing your overall tax liability.
However, it is essential to note that tax benefits should not be the sole reason for taking a home loan. As the primary purpose of a home loan is to help you purchase a home. It is crucial to carefully consider your financial situation. The loan terms, and your ability to make timely repayments before deciding to take a home loan.
Taking a home loan can be beneficial in the long term. Provided that you have carefully assessed your financial situation and have a stable income to support the repayments. Owning a home can provide a sense of security and stability, as well as the potential for long-term financial gains if the property value appreciates over time.
Additionally, paying off a home loan over a long period can help you build equity in your home, which can be useful for future financial goals or as a retirement asset.
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