Advantages & Disadvantages of Home Loans: Is Taking a Home Loan a Good Idea?

26 DECEMBER, 2022

The idea of owning a house at a low-interest rate is so pleasant that most people see no reason not to avail of a home loan. These loans fulfill dreams, especially of young couples, since they allow people to own a house quickly. When you become a homeowner you stop questioning if home loan is good or bad. However, just like everything in life, there are both pros and cons of home loan. Here are a few of the advantages and disadvantages of home loan that will help you understand ‘is it advisable to take home loan?’

Advantages of Taking Home Loan

Let’s first look at the positive side of loans. Here is a list of its advantages:

Sense of accomplishment: Let's admit it. The satisfaction of owning a house in your asset column is no less gratifying than a promotion that you get after years of hard work.
Low interest rates: Low home loan interest rates make home loans very attractive to potential buyers.
Flexible tenure: Repaying your home loan is easier with flexible tenures offered by various banks.
Tax benefits on principal repayments: Enjoy tax benefits on bot principal amount and interest.

These advantages might lead you to still wonder, is home loan good? However, you must also look into the disadvantages to know whether taking home loan is good or bad.

Summary Of Tax Benefits On Principal And Interest Paid Is As Below:

Tax Benefits

On Principal Repaid

On Interest Paid

First Home -Self Occupied

Actual principal repaid subject to a maximum of Rs. 1,50,000 (Rs. 2 lakh for senior citizens) can be claimed as investment eligible for tax deduction under section 80C.

●Actual home loan interest paid subject to a maximum of Rs. 2 lakh (Rs. 3 lakh for senior citizens) if house construction completed within 5 years from the end of the financial year in which loan is taken

●If construction of house not completed within five years then Rs. 30,000 is tax exempt

●Additional exemption of upto Rs. 50,000 on interest paid for loans upto Rs. 35 lakh with cost of home upto Rs. 50 lakh.

First Home – Rented/ Vacant (deemed to be let out property)

Upto Rs. 1,50,000 (Rs. 2 lakh for senior citizens) eligible for tax deduction under Section 80 C. The deduction is available only if the property owner is staying in a different city for work.

Exemption on interest is capped at lower of two, a) Rs. 2,00,000 or b) actual interest paid for all properties owned by a tax payer.

Second Home or Additional Property

None

Exemption on interest is capped at lower of two, a) Rs. 2,00,000 or b) actual interest paid for all properties owned by a tax payer

Under Construction Property

None

The interest paid can be claimed in equal parts in five financial years post completion or handing over of property within the overall annual limit of Rs. 2 lakh.

Disadvantages of Taking Home Loan

Home loans are a great facility offered by banks but it has some drawbacks. Here is a list of disadvantages of home loan:

Long-term commitment: The deduction of EMIs (monthly installments) can last 10-15 years, which can become a serious pain point. Home loans impose a major burden on personal finances.
Property Appreciation: Due to fluctuations in real-estate market, the property purchased might not give the expected returns.

These are a few of the home loan advantages and disadvantages. For every borrower, it is important to think about them carefully before you avail of a home loan. This will help you understand if home loan is good or bad for you.

Read a Similar Article: How to refinance your Home Loan

Conclusion

While borrowing a home loan is a good way of making your dreams of owning a home a reality, they do come with certain obligations. There are both advantages and disadvantages of home loan but it is the borrower who has to weigh their options and see if borrowing a home loan is good or bad for them. The pros and cons of home loan will help you come to a decision. If you are still wondering is it good to take home loan, visit Kotak Mahindra Bank’s website and find out all about home loans.