Home Loan to buy a house vs. Self-Funding: Which is better?

Despite the cost of houses skyrocketing, it is still a common man’s dream to own a comfortable house. Although technology advancements have made this dream become a reality through different types of home loan to buy a house, the aversion towards high-interest debt comes into foreplay leading to think that self-funding is a better option to explore.However, in the race between home loans and self-funding, which is a better option? Let’s find out!

The factors that are to be considered when opting for a home loan to buy a house or use extra funds differ on an individual basis such as his/her financial condition, age, the intent of buying a house(investment or self-use), existing liabilities, and others.In order to better assess between which is better, here is a comprehensive list of advantages whether a home loan to buy a houseor self-funding is beneficial.

1. Cost of the house : Availing a loan to buy a house will incur a cost of almost 130 per cent to the cost of the property for a 20-year loan tenure. However, this can be eliminated completely if you can self-funding a house.
2. Hassle-free process : Self-funding a house result in a more hassle-free process as it does not involve any waiting time for approval and disbursal.

Now that we know the benefits of self-funding a house, here are the benefits to opt for a loan to buy a house:

1. Tax Benefits : Opting for a home loan can help in availing tax benefits under Section 80C of Income Tax Act of India. Under the section, one can claim up to ₹1,50,000. Moreover, you can claim a deduction in the interest component for up to ₹2,00,000. This is one of the biggest reasons why people prefer a home loan to buy a house.
2. Boosting credit score : When you are repaying the EMIs on time, you are boosting the credit score. With timely payments and good credit score, your creditworthiness improves.
3. Liquidity : By using all your savings on purchasing a house instead of availing a loan to buy a house, you are sacrificing your liquidity. This can backfire in case of any immediate financial emergency.

If you can self-fund a house without affecting your liquidity and other investments, then it is ideal to buy a home without a home loan. However, if you are burning your savings and retirement corpus, instead of opting for a loan to buy a house, now is the time to rethink!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.