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30 JUNE, 2021

Praveen had always lived out of his suitcase, earlier for education, and then for a job. Now, he was getting married and wanted to settle down in Bangalore. While his parents suggested renting a place, his friend, an experienced financial advisor, suggested that he buy a house. Praveen pointed out that he lacked adequate funds but was convinced when his friend explained the benefits of availing a home loan rather than renting an apartment.

Here are the reasons, which made Praveen opt for a home loan and not a rented apartment. You can also consider these aspects before making a decision.

  • Sense of security
    Having your own house is comforting and peaceful. There is certainty that no one will ask you to vacate the house or stop you from designing the house as per your taste and needs. Also, owning a house eliminates the hassle of dealing with the landlord for petty things. Nobody is there to question if you wish to put up photo frames on your wall or turn your garage into a backyard.
  • Lucrative investment
    Real estate investments are lucrative investment vehicles. You can benefit from the appreciation of the house, as real estate prices tend to increase over time. If your house is in any metro city or in a locality that is likely to be developed in future, your house can give you profitable returns. It’s a fixed asset that can be useful in the times of a financial crisis.
  • Social status and pride
    Coming back to your own house after a tiring day is not only comforting but also a matter of pride. Moreover, having a house is a reflection of your social status and a sign of success and accomplishment in a country like India.
  • Wealth building
    While rent is a pure expense, the EMI you pay towards the loan helps in wealth building. Every time you pay home loan EMI, your equity in the house property increases. Buying a house with a home loan helps you get shelter and build an asset, both at the same time. Also, you need not worry about increasing rent or renewing the rent agreement every year.
  • Long-term benefit
    While living in rented apartments, the benefit received from the money spent on the house is left behind when you move out. However, when you spend on your own home, the benefits add to the value of the house and are reserved for you and your family.  
  • Tax Benefits
    Home loans are a smart way to save tax while owning your home. Under Section 80C of the Income Tax Act, 1961, you can claim, a deduction of up to Rs 1.5 lakh on the principal repayment and up to Rs 2 lakh on the interest repayment from your income.
  • Higher cost
    While from afar, you might feel that renting a place is a feasible option, however, over the long term, there are high chances that you would have to spend more on rent than on home loan EMIs. While paying rent might keep you away from debt, it surely is not the same as owning a house.Let us understand this with an example.
    • If you take a home loan – Say, the cost of a house is Rs 50 lakh. You plan to take a home loan to purchase it. You pay a down payment of Rs 5 lakh and avail a home loan for Rs 45 lakh. The interest rate is 6.5%, and the tenure is 20 years. You would pay an EMI of Rs 33,551 for 20 years. Accordingly, your total repayment would be Rs 80,52,190.
    • If you take the house on rent - The cost of the house is Rs 50 lakh, for which you pay a monthly rent of Rs 25,000 and a deposit of Rs 1 lakh. Assuming you would rent this house for 20 years, you would pay a total rent amount of Rs 99,19,785. (Assuming an increase in rental by 5% annually).

Going by this example, you would own a house at the end of the tenure and pay a much lesser amount than staying on rent.

So, what are you waiting for? Opt for a home loan from Kotak Mahindra Bank and buy your dream house, to avoid any hassles of a rented apartment.



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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.