I often talk about finance management and I believe it is an important part of our life. It is necessary for everyone because we all are involved in different ways with money management and with some knowledge about financial management we can make better investments. This can also help us get things better rather than juggling around. Unfortunately lot of people believe that they should focus more on earning money but they are not bothered about money management and sometimes because of that they also lose since they are dependent upon another person. While it is important to manage money for different investments it is also important to minus debt if in case you have one.
In India buying a home is not an easy thing so in most cases people take home loans. Usually, these home loans are for a tenure of 15 to 20 years which is of course a very long time. Certain rebates are given by the government with tax filing which is an additional benefit you can say but we cannot forget that with a home loan, we often pay a huge amount as part of the interest. At present the interest rate for home loans is between 8 to 9% depending on bank to bank.
People have different approaches to managing their home loans but in my opinion, this is something that should not be continued for long. I dont say that we should not take it for buying a home but we need to have a repayment strategy in place to get rid of it soon. While this is necessary in some cases, this cannot be a good solution if you are a taxpayer and a major chunk of your salary is deducted as part of tax. In an idle scenario if you repay your home loan in the first five years of the loan starting period then its beneficial. If this five-year tenure is gone then it is better to keep on paying the EMI rather than part payment to close the loan early. This is because most of the banks in India design loans in such a way that they take a huge amount as part of the interest in the first five years.
Whatever amount you are paying is an interest in the tenure of 20 years and if you go through the emi breakup then you will notice that approximately 40 to 50% interest has been taken in the first five to six years. If you have already paid a bigger chunk of the amount as part of the interest then it does not make sense to repay soon since you are going to pay the capital amount mostly. But if you're not a taxpayer then I think it is always a good idea to repay as and when possible because it is going to reduce the liability from your shoulders.
For the benefit of tax deduction, this is a good product because you can save a lot on the tax payment including the capital and interest payment on different components in tax filing. I pay taxes and I also have home loans so I do not repay anything because if I do then my loan will be closed soon and thereafter I will not be able to claim the tax benefits. Buying a home is a good idea because if we stay on the rent then rental money is never our part of income in fact it is a bigger expense in our pocket.
Different people have different opinions that rental is good and it is not worth buying a house but I have different thoughts. Even if you are in a job profile that requires you to travel to different places then also owning a home is not a bad idea because you can rent it out when you are not around and that rental income can be used to pay the rent in another city. No matter where you live you will be able to claim the tax benefits every year and that I think is a big benefit that is available only with a home loan. The rate of interest is also competitive as compared to other types of loan products and this is another plus that we should not ignore since this is an additional benefit that we receive if we are a loan payer.
Thank you