Importance of home loan in buying a house
Topics covered :-
1. What is home loans and how much interest does we have to pay if we get a home loan?
2. Why should i use home loan even if i have the sufficient amount .
3. Calculations.
4. Precautions
So, firstly lets start with the basics of home loans and the interest rates on home loans
What is home loans and how much interest rate does banks charge on home loans
Home loans or housing loans is a type of loan that banks provides for purchasing a house . Banks charge relatively low rates of interest on home loans . The interest rates on home loans lies between 6.5% to 10% . Although nowadays getting a home loan is better option even if you have the amount to buy a house.
Why should i use home loan even if i have the sufficient amount .
So the reason to get a home loan even if you have the amount is that you can easily make more returns from using that amount which will be more than the interest rates you will be paying to the banks .
Let's explain with an example-
So, let the price of house is rs 50 lakhs. If i buy house without home loan i will have to pay rs. 50 lakhs and i will be left with no money but the relief is that i don't have any type of loans that i have to pay and debts that needs to be settled.
But on the other side if i get the home loan of rs.50 lakhs at interest rate of 7% per annum for 20 years so i will be having a house and my rs. 50 lakhs but with a loan that needs to be repaid. Now, If you think about it you can easily invest the money you have and can easily get 13% to 15 % interest that means even if you have to pay 8% interest on rs 50 lakhs to the banks ,you can still earn atleast 5% more interest . I know we have a pressure of paying the loan but you don't need to take the stress because nowadays we can fix a recurring transaction i.e, the bank will automatically cut the monthly EMI on the same date of every month and don't have to worry about it .
Now many people will be thinking that it is a very good strategy and they should use it but those who don't have knowledge of investment should not try this because if they are not able to earn the interest on their investment than they can face many problems and can get stuck into a debt trap.
Calculations
Let the price of house is rs. 50 lakhs
Let the rate of interest bank charges is 7%
The time for repayment of loan is 30 years
So let us assume that the amount of interest per annum is fixed i.e, 7% of rs. 50 lakhs
That is the amount of interest = 3.5 lakhs per year
So for 30 years it is 3.5 lakhs × 30
so the total amount of interest paid in 30 years is equal to 1 cr. 5 lakhs . Although the interest amount you pay is less than this but let's assume it's 1 cr 5 lakhs
And if you invest 50 lakhs in equity which gives you an average return of 15% per annum i.e 15% of 50 lakhs
The amount of interest you recieve every year is 7.5 lakhs
So if you invest rs. 50 lakhs for 30 years you will get 7.5 lakhs × 30
That is the total amount of interest received is 2 cr. 25 lakhs i.e more than double of your interest payment.
Precautions
Yes it is very easy to get the returns more than your interest payment but you should have the knowledge to invest .
1. Never invest in equity if you don't have the knowledge - having a reasonable knowledge of stocks before investing is must as it is a risky market. People earm a lot from here but many lost their everything in this market too.
2. The returns from the equity is better than investment in fixed deposits and other things .- choose where to invest wisely, take 2 to 3 days and then decide where to invest.
3. Do not invest aggressively- when people start getting returns from the investment they get aggressive and try to find more ways of getting higher returns but doing this can lead to many problems in the future for the investor as he/she can get engaged in wrong stocks or due to aggressive nature he/she can invest in wrong things which do not have future.
4. Try to get the regular returns- if the returns are not regular and you are facing losses in some years then it is not a good sign for your investment and you can suffer losses in the long run.
5. Invest for long term - investments for long term gives returns more than the investment for short term so try to indulge in the long term investment for higher returns and constant returns.
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