Buying a house is one of the most important decisions of your lifetime. If you have available down payment (typically 15% of house value), you can borrow balance 85% against the house you intend to buy.
Buying House for Tax Saving
The benefits of home loan interest deduction and repayment of principal will be more than the house rent allowance exemption.
Buying a house using home loan is also an investment for retirement. It is like a disciplined saving for your safe retirement. You can reverse mortgage the house after attaining 60 years of age. Your monthly expenses could be met by the tax-free amount you will receive from reverse mortgage.
The most important benefit of buying a house is the hidden appreciation of the value of property.
Buying House: The Flip side
However, the cash outflow is high in case you buy a house. For example, if you buy a house worth Rs. 50 lakh then you will need Rs 7.5 lakh for down payment and approx. Rs 47,000/- EMI (@10.5%, 15 yr loan). So, outflow in the first year is Rs 13 lakh. Whereas, you can rent such a property for approximately Rs 2 lakh (including 4 months security).
Buying a house is a long term decision as the cost of transfer/sale is very high. It includes stamp duty, brokerage, etc. Moreover, capital gain tax liability will also arise at the time of sale.
Though a rented house is easy on cash outflow, a home lease is typically given for only 11 months, which makes renting a house a short term plan. Your home could be the asset you give your children as a secure gift for generations. Buy a house if you are eligible for a home loan. If you delay the decision of buying a house, the value may so appreciate that you may not be able to afford it.
