The home of your dreams is not a choice you make in a hustle. You research a lot and think a lot too. Now, many times people fall into an enigma when it comes to the payment procedure that whether they should go for a cash payment or a home loan while buying the house. So to remove this dilemma we are going to see both the sources and their benefits and decide.
Always has been one of the personal favourites of the real estate builders. When a prospect buyer thinks of making payment in the cash he must have thought of it and must be saving a long time. Every single individual holds the thought in mind that he/she should buy his/her home without a mortgage. It should be owned by him/her and no one else. There is not always financial reason attached towards the house but also the legitimate one. Here are few of the benefits and the weak points of carrying out a deal in cash
Benefits of Cash Payment:
- No Credit History Needed:
Trying to get a loan since so long? But still, cannot meet them because of lack of credit history. Here is what you can do, you can unlock your ample savings and buy your dream home in cash. Yes, one of the major benefits of carrying out the transaction in cash is that you don’t need a credit history. So, in situations where the loan is not possible you should try with the cash alternative.
- Risk-free Savings:
If suppose a mortgage costs you 10% and you pay cash, you would essentially be saving 10% in interest risk-free. So in the case where the rates on the mortgage are higher than what return you on getting back on your investments, definitely cash is a better choice. So, cash choices are so not bad.
- The Feeling of Ownership:
Yes, when you buy the house from your own savings in the form of cash you begin to feel the ownership. In the case of the home loan unless you settle the whole of it the bank is the joint owner which doesn’t seem very pleasant. So the third benefit is the feeling of ownership when you make cash payment for your dream home
- No Leverages:
Yes! If you are the sole owner of the house there is no risk of losing. For instance, if the house value drops by 10% the loss you will occur is 10% loss on the cash payment you made. But if the mortgage you have made the deal is 20% and the house value drops by the same i.e. 10% you can lose 50% of the money as you are leveraged.
- Chances of a Better Deal:
Yes! The power to negotiate is in your hands when you are dealing in cash. You have no issues like to pay the amount in installments at the time when you take the loan and the deal also ends in a short span resulting you an upper hand. You can negotiate a lower price to the person who is selling the house.
- Financial Security:
Yes! When you pay in cash you have a financial security whereas in the loan maybe if you incur some loss, you fall sick or the earning member in your family dies then, the financial security in your family ends with it. The future generations have to bear the burden of the banks to repay the loans
- No Debt:
Sounds like something you have always dreamed for. When you have no debt on you, you feel so relaxed. It is also the psyche that plays an important role some humans are unable to deal with the scenario of the loan; some take it positively whereas some take it negatively. So the biggest benefit anyone can claim is no credit issues in the market. If you have additional funds and have got a higher risk taking ability than you can try your chances in equity.
Disadvantages of Cash Payment:
Cash payments may be a boon for many of us but some of us find it filled with problems. Cash payments can lead us to some issues too. Let us have a look:
- Low Liquidity:
Oh yes! It comes up with problems too. For instance, you want to buy your dream house along with a new car and you liquidated all your assets in the house so you have to compromise now. This seems like a regular situation for many of us that for one good thing we have to compromise the other one. So, never liquidate all of them!
- You are not Leveraged:
Leverage has got two sides to it, so suppose if the value of the home goes up, then the percentage gain of an all cash buyer would be comparatively lower as to the person who purchased it through mortgage
- Real Estate is not an Easily Convertible Asset
Looking at the current scenario of real state, there are a lot of sellers but no buyer. So, if you buy your home and are not satisfied or wish to change, it’s going to get hard and it’s going to give you trouble.
- Reality Check:
Yes! Most of us are not really born millionaires to buy the dream home of our choice so cash option doesn’t come into the picture when you do something for your own. In India, most of the people go for home loans when they need to buy a new house
Home loans are a decent option when we look at the home of our dreams. We just have to compromise with some of the things. Like we have to buy a home we keep something as collateral in case we won’t be able to payback and then on the mortgage we get a loan. Let us have a look what benefits home loan offers us:
Benefits of a Home Loan:
- The Sense of Accomplishment:
When you buy the home of your dreams, you invest in it for a lifetime. So, the banks help you to achieve that sense of achievement through the home loans. The home loans help us to achieve that sum in our investment portfolio.
- Capital Appreciation:
Yes! Once you buy the home of your dreams you can well furnish it and set it out for rent. As you can observe the trends in these days due to inflation the rent prices are getting high so, you can take advantage of it.
- Low-interest Rates:
Buying a home is definitely not a short-term decision, so you can make your choice and look at the interest cycle rates. The interest cycles take a boom as well as a low. So, when they look you can take advantage of it by the mortgage. Given the current scenario where Home Loans are at a 6 years low, it makes perfect sense to go for a home loan.
- Tax Benefit:
One the benefits that all the banks will mention it to you. On your loan, you get a certain amount of tax benefit on your interest that you pay on your loan. As per Section 24(b) of the Income Tax Act, 1961 a deduction up to INR 150,000 towards the total interest payable on the home loan towards purchase/construction of house property can be claimed while computing the income from house property.
- More Liquidity:
Yes! Your assets will be more so you can maintain more liquidity for other investments. Thus, if you are buying your home on rent and some contingency occurred. So, you can quickly liquidate your assets and get yourself out of the trouble. Here, is the list of the problems of home loan too.
Disadvantages of a Home Loan:
- Ample Amount of Interest:
Home loans if not repaid on time can become a sign of trouble too, as the banks claim what they need. If your loan to income ratio is between 40-50 % or more than it is a sign that you need to take care for.
- Long Tenure:
If the tenure of the home loan is very long then still you are at loss. Try to keep the tenure of the loan to make it easy for you to repay it to the early as possible. As you don’t own your home so try to keep it as short as possible
- Hits of Failure:
You can get disapproved when you go to apply for the home loan. Many of us don’t fall in the eligibility criteria due to low income or low credit records resulting from a failure in the loan. This can affect your dream to buy your home.
- Mortgage Approval:
In India, not many of us hold the ample amount of assets to mortgage for the loan that we tend to borrow. Thus, it is hard for us to borrow the money. This is also one of the issues faced when you go for the mortgage option.
So, which one is a better one? You can have a neutral option to go for the home by taking up a medium or a small side loan along with the savings that you have. Thus, it is possible for you to purchase the home of your dreams.