Advantages of Buying Real Estate Property on Loan
Most buyers balk at the idea of taking out a loan to make real estate purchases. They assume that paying it back would require working to the bone and the interest paid on it will take generations to recoup from the value of the property. Fortunately, this is nothing but a common misconception.
Even though they come across as money pits, there are a number of advantages to buying real estate properties on loan. Read on to find out.
Long-term financial benefits
The steep interest rates that used to turn buyers away from taking out loans to buy real estate are no longer a problem as COVID-19 has ignited a new flare of low-interest charges in the market.
According to the statements on their websites, financial service companies like the State Bank of India and Tata Capital have reduced their rates to a range of 6.7%-6.95% for consumers looking to borrow money for real estate purchases to increase affordability. This low rate, and subsequent EMI (equated monthly installment) plunge, suggests that buyers will now experience a high-profit return on the properties they buy on a loan.
Making real estate purchases with loans offers the opportunity of tax benefits that cannot be availed when renting property or buying real estate with savings. These benefits are often overlooked by new property owners who end up making hefty easily avoidable expenditures.
The Income Tax Act is a statute that provides for levy in loan repayments. As per Section 80C of the Act, loanees are eligible to claim tax benefits of up to Rs. 1.5 lakhs on the repayment of the borrowed amount. Deductions of up to Rs. 2 lakhs can also be claimed under Section 24(b) on the interest that is to be paid on top of the loaned amount.
Guaranteed property safety
Lenders always place the property they are giving out loans for under close scrutiny. They carefully review the real estate documentation and conduct thorough background checks on the builders and permits obtained for the property in addition to going over its involvement in any legal disputes with a fine-tooth comb.
This due diligence undertaken on the lender’s behalf not only assures banks on the safety of the property but also reassures buyers making the purchase who no longer have to conduct any investigations of their own.
Enhanced credibility as a borrower
One’s punctuality and diligence in repaying a loan is directly proportional to their CIBIL (Credit Information Bureau India Limited) score. This score, also known as the credit score, is used by banks to determine the interest rates at which they grant borrowers loans, which means that if you have been an upstanding borrower in the past, your strong CIBIL score translates into favorable terms for any future loans.
An alternative saving method
Money comes like a turtle and goes like a rabbit which is why if you have a consistent stream of money, you understand that it can be incredibly hard to hold onto your disposable income.
This is where EMI payments can come in and act as a saving method, after full repayment of which you emerge as the proud owner of a property with sky-high market value can turn over a great profit.
A source of income
Many people with transferrable jobs tend to jump to the conclusion that buying a house is not a smart investment, forgetting that a home can serve as an additional source of income if you rent it out.
The money generated from a monthly rental income can not only act as a passive source of income used to make mortgage payments and pay off the loan, but it can also be utilized to fund your own rent without having to pull out a large chunk of money your savings.
For middle-class families, property ownership is a distant dream made attainable with loans. Home loans are endowed on the borrower’s credit score and repayment capabilities, this means that a steady source of income is all you need to qualify for loans of tenures as long as 10-20 years with unburdening, small, monthly EMIs.
All the points above clearly point towards the fact that taking a loan for real estate purchases is the way to go. This claim is further backed by a research conducted by Nobroker.com which showed that over the last year a dramatic increase, ranging from 25% up to 40%, was seen in the number of loan applications for real estate purchases by financial institutions in India.
This statistic is indicative of the great majority that understands and wishes to avail the advantages of buying real estate property on loan.
Thus, we conclude that loans are a beneficial and smart choice for potential buyers looking to make real estate purchases.