Let us not try to challenge the basics in anyway; being a borrower is not easy. There are so many terms and conditions you have to abide by; there are so many dos and don’ts one has to mind. Given a choice, you may never like to seek financial assistance from banks. Now, what if you have a choice? What if you have enough money to buy a house without taking a home loan? You like a house worth Rs 50 lakh, and you and your wife have enough savings to make the purchase without having to go to a housing finance company. Why should you opt for a life where several restrictions will be thrown your way when you can simply avoid them? A fair point, indeed, but here are some other points that you must consider before arriving at a decision.
- It may not be a wise idea to pump all your liquid money into an illiquid asset. In case you need cash owing to an emergency in future, you would find it mighty hard to arrange it. Your home may be worth millions but it happens to be an illiquid asset. It may take a long time before you are able to sell it and use the cash received through the transaction. In short, it is never a good idea to invest all your money in immovable assets.
- You enjoy tax deductions on the principal and interest paid against a home loan. In India, a borrower can claim deductions under Section 80C of the Income Tax Act for the repayment of the principal component. The limit in this regard is set at Rs 1.5 lakh. Section 24 of the Act, on the other hand, allows borrowers to claim deductions on repayment of the interest component. The deduction limit here is set at Rs 2 lakh. When you buy a house without taking a home loan, you are letting go of these benefits, too.
- The value of the property you have bought using other people’s money — the bank’s in this case — is going to increase as time progresses. That would be enough to make up for the interest you have been paying on the loan. On the other hand, you can invest in another property using the remaining cash, in case you wish to. If you have liquid money lying in your bank account, there is no lack of choice. You would be limiting your options when you put all your money in an illiquid asset.
- You may like to see it as restricting, but a borrower learns to live a more financially prudent life. Compare two people, one who is repaying a loan and another who is not. The latter is more likely to splurge money on unimportant things. Even if the person regrets his decision to recklessly spend his hard-earned money later, the fact of the matter is that his financial position would take a hit in the process. The absence of restrictions may actually run havoc on most of us who are compulsive buyers. Someone who has a loan to repay will be far more carefully before he spends a penny.
- Gone are the days when thought highly of you if you could foot all your bills using the money lying in your pocket. We live in a digital age. You are likely to pay less if you use your credit card for making certain payments, for instance. You get certain discounts in certain restaurants, for example, for using certain kind of credit card. Same is true of ticket bookings—movie, air tickets, et al. Will it not simply be dumb to let go of all these advantages because you like to depend on your finances alone? How you utilise financial assistance from banks reflects in your credit score; having no record whatsoever would mean you are a poor manager of finance. Now, how is home purchase and all this co-related? They are, as a matter of fact. We also live in uncertain times, and have no idea when the need to knock the doors of a bank might arise. In case we have no credit record, the bank may not find it comfortable lending to us. In case you take a loan to buy your home, you would also be maintaining a good credit history.
