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HOME LOAN EMIs vs RENTING A PLACE (CHOOSE YOUR RIDE WISELY)

Updated: Apr 2

SOON AFTER A PERSON BEGIN TO WORK, OUT OF MANY GOALS THAT OUR SAVINGS ARE EARMARKED FOR, ONE IS TO OWN A DREAM HOUSE.


IT IS RATHER BETTER TO USE BANK LOAN FUNDS TO OWN A HOUSE. HERE’s WHY?




TAX COSTS


THE EMI PAID IS WHOLLY DEDUCTIBLE FOR COMPUTATION OF TAX IN THE FORM OF


1) WE GET A DEDUCTION FOR INTEREST PAID ON LOAN AMOUNT

2) AS WELL AS A DEDUCTION FOR THE PRINCIPAL SUM REPAID DURING THE YEAR IN EMIs PAID.

subject to maximum amount allowable as deduction as per the law


An additional tax benefit was given to the first time home buyers, who will get enhanced deduction of Rs 1.5 lakh on interest cost on housing loan for a house valued upto Rs 45 lakh

1) IF YOU RECEIVE HRA THEN YOU ARE ELIGIBLE FOR EXEMPTION U/S 10(13) FOR RENT PAID WHILE MAKING COMPUTATION OF TAX.

2) EVEN IF YOU ARE SELF EMPLOYED YOU ARE ELIGIBLE FOR DEDUCTION U/S 80GG FOR RENT PAID SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS.




ASSET (EMI) vs LIABILITY (RENT)


1) SINCE VALUE OF YOUR HOUSE PROPERTY OFTEN APPRECIATES OVER TIME AND YOU HAVE THE OPTION TO USE THE EXTRA SPACE TO MAKE RENT OUT OF IT. YOU GET AN ASSET TO YOUR NAME. MAINTENANCE COST IN THE FORM OF PERIODICAL REPAIRS, PROPERTY TAX, BUILDING DEPRECIATION, INSURANCE COST DO NOT LOOK TOO MUCH THEN.


2) WHILE IF THE PLACE IS RENTED THESE EXPENSES ARE USUALLY BORN BY THE OWNER.



TIME VALUE OF RENT vs TIME VALUE OF EMI

WHAT ABOUT INFLATION !!

o YOUR RENT COST COMES WITH A CLAUSE OF ANNUAL INCREMENT.THIS WILL ACT LIKE A LEAK IN A ROOF AND EAT YOUR ALREADY INFLATION HIT SAVINGS.


o EMIs INCREASE WITH RATE OF INTEREST GOING UP, KEEPING THE TENURE UNCHANGED INFLATION INCREASES YOUR INTEREST COST AND VICE A VERSA.

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OTHER AND RATHER ONE OF THE MOST IMPORTANT FACTOR


IF YOU FAIL TO MAKE PAYMENT OF EMIs AS THEY BECOME DUE, THIS AFFECTS YOUR CREDIT SCORE.


FOR INSTANCE FOR ALL YOUR FUTURE LOAN NEEDs,


1) YOU WILL END UP PAYING HIGH RATE OF INTEREST,

2) SOMETIMES DECLINE OF YOUR LOAN APPLICATION,

3) REQUIREMENT OF HIGH VALUE OF SECURITY/ GUARANTEE ETC.


FALLING SHORT ON YOUR RENTAL PAYMENTS, YOU CAN ALWAYS ASK FOR SOME TIME FROM THE OWNER (WITH OR WITHOUT PAYMENT OF INTEREST THEREON).



THEREFORE WHEN OWNING A HOUSE USING BORROWED FUNDS YOU SHOULD ENSURE A STEADY SOURCE OF INCOME. CLEARLY THE POSITIVES WITH HOME LOAN EMIs SURPASS THE NEGATIVES AND IS MORE FRUIT FULL THEN LIVING ON RENT.


Credit Linked Subsidy Scheme (CLSS) to Eligible Home Loan Borrowers.

Pradhan Mantri Awas Yojana Whereunder


the Interest Subsidy up to 2.67 lakh per house is admissible for Beneficiaries.

MATH FOR SAVINGS OF INTEREST COST

The benefit for EWS/LIG beneficiaries under CLSS works out to as high as Rs. 6 lakh considering time value of savings of Interest cost over a loan period of 20 years.


In the Next Post

Find Out How YOUR HOME LOAN EMIs will be affected with RBI’s 3-month EMI, loan moratorium !!!!


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