Buying a house is one of the most important decisions of your lifetime. If you have available down payment (typically 15% of house value), then you can borrow balance 85% against the house you intend to buy.
The benefits of home loan interest deduction and repayment of principal will be more than the house rent allowance deduction. Most important benefit in buying a house is the hidden appreciation of the value of property. If you delay the decision to buy a house, the value may so appreciate that you may not be able to afford it.
Also Read : Never change house before 3 years
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. 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 a similar property for approx. Rs. 2 lakh (including 4 months security).
Also Read : Leave home not liability when you are not around!
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 through home loan.
About the Author: Manoj Harchandani is a certified TRP (Tax Return Preparer), authorized by Income Tax Department, Government of India. He is a tax planner and investment advisor. If you need ITR filing assistance, tax advice, tax saving tips, short term/ long term investment advice, please write him at manojh.trp@gmail.com
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