My June article in Mint (http://goo.gl/kkfeOW) was an attempt to help individuals decide whether to live on rent or live in a self-occupied property. If one has chosen to live in a self-occupied property, then the current section is for them – to understand the benefits of living in a self-occupied property.

Rajesh works at a consultancy firm and has recently shifted to Gurgaon so he saves the travelling time to his work place. He moved into a rented accommodation near his office and pays a good amount as rent every month. A friend of his recently suggested him to buy a flat of his own by getting a home loan approved that he could pay back to the bank in easy monthly instalments. Rajesh went over this idea and thought that it would be better to pay money every month for a property that he would own in a few years rather than paying an amount towards someone else’s property.

He went around looking for home loans that different banks were offering. Some offered better interest rates than the other whereas some banks had EMI plans that were more feasible. The more number of banks he visited the more confused he got. Every loan advisor at different banks made their home loan look better than the other. He was getting advice on the features that every bank was offering on the home loan but not how a home loan in general could be an advantage when buying a home.

When thinking about buying a home most of us don’t realize the advantages that a home loan can bring with it. Some people see it as a business strategy by the banks to keep you tied up in the never ending monthly payment process that comes out of your salary. However, there are several advantages of a home loan that can make it easy for a borrower to own a home without putting too much pressure on himself every month. Here they are in plain English terms:

 You can avail tax benefits under section 80(C) and 24(a) & (b) for principal paid back to the bank, any amount paid to the municipal office for registration process executed, interest paid to the bank and standard maintenance deduction if the property is leased out.
 Any income tax saved can be invested in other asset classes to fund your financial goals.
 Your money that would have gone as rent every month is redirected as EMI towards building your asset in the long term.
 You get the emotional security (a roof on your head).
 The EMI’s induce compulsory savings (or so-called investments).
 Your EMIs may stay the same for years unlike rent which increases periodically.
 Appreciation in the property value increases your net-worth with time.
 You earn the time-value of money as opposed to the lender. In other words the cost of your loan on an asset is not as high as the appreciation of the property (given the appreciation trends of last decade) and you end up building net worth with borrowed money.

To some of us renting may seem like a better option than getting a home loan due to commitment attached to a home loan. However, if your Cashflows are stable, a home loan can prove to be a wiser decision in the long run. It not only helps you own a property but also gives you financial advantage over any rented accommodation that would always belong to someone else.


Amit Kukreja is a fee-only financial planner (FPSB) and Investment Adviser (SEBI). He is the founder of WealthBeing Advisors, a financial planning and wealth advisory firm.