Save Money For A Home – When used wisely, a loan can be our largest dream realizer. A home loan is a device that has helped innumerable people achieve a life goal as important as owning a home. Meanwhile, many of us have the money to buy a house outright without the use of a loan. Nevertheless, borrowing money to buy a property is not always necessary.
Aspiring homeowners are attracted to this financing option by its many advantages. One of the least expensive forms of borrowing that have a low-interest rate is a home loan. Regarding home loans with floating interest rates, there is no prepayment penalty, unlike with other loans. Therefore, using a loan has certain distinct benefits.
Due to the numerous tax deductions provided by Sections 24, 80C, and 80EEA of the Income Tax Act, a house loan may be the most effective tax-saving tool. An eligible home loan borrower can claim a combined tax deduction of up to Rs. 5 lakh (Rs. 1.5 lakh for principal repayments under Section 80C, Rs. 2 lakh for loan interest component under Section 24, and Rs. 1.5 lakh for the loan interest component under Section 80EEA if he meets the eligibility criteria), which can help him reduce his tax liability by Rs. 1.5 lakh if he is in the 30% income tax bracket.
Even if you have enough money to buy a house with your own money, you might still wish to use a home loan facility to reduce your tax burden. You can invest your money as a result to get a good return. For instance, current floating rate house loan interest rates can range from 7.9% to 8.3% annually based on your credit score, loan size, and duration. These historically low rates are being provided as a result of the RBI’s order to lenders to connect retail lending rates to an external benchmark, such as the repo rate.
It may cost you significantly more in interest than your house loan interest rate when you are obliged to acquire a source of funding due to a lack of funds, such as a personal loan or a collateralized loan. So why buy a home with your own money while facing a cash shortage? Your savings will safeguard you from life’s unforeseen events and aid in achieving other significant financial objectives.
Before financing a project, banks conduct rigorous due diligence, which significantly lowers your risk. Before authorizing a loan for a project, they check the documentation, the title, and the legal approvals. Therefore, a home loan from a bank that has already approved the project is safer than one from a bank that hasn’t.
In any case, getting a home loan is expensive, and many people have strong emotional attachments to debt-free home ownership. Many people make an effort to pay off their loans as quickly as possible in order to lighten their financial load. With a high loan amount, it can be challenging to pay off your mortgage. It is therefore wise to plan ahead and set aside additional funds for the repayment of your mortgage.
Tips Before Taking A Loan
1. Perform your due diligence: Before submitting a loan application, you should review and compare the interest rates, processing fees, and other fees of various banks and home financing firms. You will receive the best rate as a result of this method, and you won’t later regret having to pay more interest.
2. Bargain with the bank or housing financing company: If you have a long relationship with the bank and a solid credit history, you can ask your relationship manager or any senior manager at your branch to negotiate a lower interest rate. Although it is not guaranteed, the bank will take into account your request based on your long-standing banking relationship and may provide the best rate.
3. Pay off your loan early: Because home loans are typically quite expensive, most borrowers choose lengthy repayment terms to lower their EMI payments. It will be the finest, however, if you remember that a longer length entails a bigger amount of interest outlay. As a result, you should aim to repay the loan whenever you have extra money after setting away enough money for emergencies.
4. Make a sizable down payment. Making a sizable down payment provides a number of advantages, including improved creditworthiness, a smaller principal that will ultimately result in interest savings, a lower processing fee, etc. Making a sizable down payment will likely result in a cheaper interest rate, which is the main benefit.
5. Transferring a Balance: If your present lender denies your request to lower the interest rate or if you are dissatisfied with the services they offer, you might consider transferring your home loan balance. You can transfer your outstanding house loan to another bank or financing firm if they have a better interest rate. By transferring your outstanding loan, you can save a significant amount on your home loan interest. Home loan balance transfers are quick and simple to complete. Make sure you properly investigate your options and select the lender with the most competitive rate for a balance transfer.
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