Buy a house ASAP?
Yes, if you can, you should buy a house ASAP.
Note — This article is not for financial experts. This is for individuals who do not worry much about how to manage their personal finance. Neither am I a financial expert. When you read further you will understand, this is just common sense.
If you are a youngster, try to buy a house as early as possible.
The key point to understand here is that a home loan is the cheapest loan you can ever get from a financial institution. Currently, the cheapest one is 6.5 per annum in India. So use it wisely.
Try to get the maximum home loan, even if you have money in your pocket.
Why doesn’t waiting work?
Notice the current inflation, it is near about 6% per annum. So buying/constructing a house next year would be 6% costlier. And doing the same after 2 years will be costlier i.e (6% + 6% of the inflated amount), you do the math, but this is called compounding.
Now notice one thing, the cost of purchase is compounding day by day but the loan amount is decreasing and as you are already paying out the home loan interest, nothing is compounding here.
Let’s take an example -
Suppose you buy a property worth 1,00,00,000 rupees. Home loan interest is 6.5% per annum.
Now let’s use the 72 formula and average growth of 12% per annum on property cost.
Years to Double = 72 / growth Rate
Which is 6 years. Means your property value will be doubled in six years, which is 2,00,00,000/-
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Now let’s see how much interest you pay in these 6 years. Approximately 6,50,000 * 6 years = 39,00,000 (Note, this is not the actual amount, it will be even lesser than this, as you will keep paying towards your principal amount each month)
So your net profit after 6 years is = 2,00,00,000(Current property Value)–39,00,000(interest) — 1,00,00,000(loan) — x(some amount you pay in EMI) = 61,00,000
Now just imagine if you had not opted for buying and taking up a home loan, where were you going to earn an amount of (61 lakhs rupees in 6 years) from?
Home loan EMI is a burden?
Yes, it could be for some people. So I would suggest not buying a big house. Rather buy a smaller one which can satisfy your needs. And so the EMI will be less which you can pay easily. You can later go for another house if you wish. And avail income tax benefits as well.
Yes, the income tax benefit is another win-win.
Getting more loans vs putting your own money
If you have some extra money then invest it in some other sources like fixed deposits, mutual funds, gov bonds. There are many investment options that give you guaranteed returns that are better than the home loan interest.
So if you can get more home loans, take them and invest them in other liquid funds.
Remember, when you are in need of money, you won’t sell one bedroom out of your 3 bedroom apartment. You need some liquid investments as well, most as your rainy-day investment.
Stamp duty and registration charges
When I bought my first house, I didn’t know that one can avail tax benefits under section 80c up to 150K against these expenses as well. Though this is a one-time loss, if you buy a property with promising good returns then you can overcome it.
If you are a youngster, then start saving for the prepayments and search for a property. Read more about personal finance. Because the earlier you make investments in life the better compounding growth you get.
Work hard and keep growing!!!!!!! Thanks.
