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With skyrocketing real estate prices, people are increasingly opting for housing loans to acquire their dream home. Interest rates are coming down all the time and the housing finance companies are literally falling over each other to lure the prospective home-seekers.
Not with standing the tax breaks and generous lending rates, a lot of people still can't arrange resources for the down-payment, which comes out to be at least 15 per cent of the property value. Taking cognizance of the situation, HFCs are coming up with home loan products called "zero down payment loan," wherein 100 per cent funding is provided for select properties.
Even if one can afford to buy a home with one's own money, home loans should be availed because they act as good savings instrument. According to industry estimates, the long term average return in investing in a home is about 20% p.a. while the average cost of borrowing funds in the market today is about 10% p.a. (considering all tax breaks).
For salaried employees, housing loans are the best way to avail tax benefits. Interest payments up to Rs 1.5 lakh on housing loans are deductible from the taxable income and there is a further tax deduction of Rs 4,000 against repayment of principal. In case a person stays in a rented house, the cost of the loan will be nearly zero per cent since he will be saving a decent amount on rent.
