Taking a home loan is a huge step in everybody’s life. It is a source of great stress to most borrowers. However buying a home brings a great sense of achievement. With price of property reaching new highs daily it is quite not possible to buy a house with our own savings. Nearly every middle class person has to avail a house loan in order to buy property.
Still there are quite a few reasons to apply for a home loan –
- Taking advantage of lower interest rates – It is important to buy a house with a house loan since one can take advantage of low interest rates. Over a 10 to 20 year period interest will rise up and fall many times. Obviously all borrowers will benefit greatly during the lower part of each cycle.
- Appreciation of capital – A property is after all an investment. It grows in value every year in India. It is a great income since price of home appreciates by several percent every year at least. Due to demand of housing in all developed and developing countries it is a nearly risk free investment. A home can at any time be used as a security against which to take loan. It is useful to meet any steep expenses that may arise due to illness or any other liability. A house is readily acceptable by a bank as a collateral security.
- Leverage – Leverage is a complex financial term meaning taking a loan to buy something which has greater value than the cost of loan. It can be shown with a simplified example. Say one buys a home for a down payment of 20% of its value and a loan payable for 15 years. The total repayment of the loan will seem to be a large amount but in 15 years the value of the property will increase exponentially. So there is a huge profit in buying property.
- Buying a bigger home at each phase of life: A home loan is a convenient way to step up to a bigger home as a family increases in size. A newly married couple can start of in a very small apartment purchased with a loan. As they welcome an infant they can sell of the old house with the bank’s permission and use the amount as a down payment to move to a bigger apartment or a house. Later they can in their middle age move to a larger house since they will have greater financial ability to pay larger installments. Banks prefer this because they already know the customer and his credit history quite well and have worked with him for several years and though 2-3 house purchases. It is a win-win situation for both customer and the bank. Without home loan it is not possible to make this kind of step up.
A house loan is the biggest liability most people take on in their life. It is a significant amount and is paid off over long duration of several years and often decades. Refinancing your house loan will lead to better and better deals with banks and lending institutions
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