Buying a home is the dream of almost everyone in this world as it is a good source of accomplishment as well as frustration and anxiety. The increasing prices in the real estate market have made it difficult for almost everyone to make his dream come true with the help of his savings only. In this situation, home financing has made it easier for everyone to buy a home of his dreams as nearly 80% of the cost of the home can be funded by the home loan provider.
What is home financing?
Home financing or home loan is a kind of personal loan that is offered by banks and other financial institutions to an individual for buying a home. The loan lending institution, whether it is a bank or some other institution, mortgage that property and the title deed of the house will be retained by them until the loan is repaid entirely with interest due by that time. You can take a home loan not only for buying a ready-to-use home but also to construct a new home as well as renovating an existing home.
Benefits of home financing
Though home financing is considered a huge liability as you have to borrow a large amount of money for a long time for this purpose still it also offers a number of advantages. Some of the advantages of home loans are briefly highlighted hereunder.
Appreciation of capital:
It is one of the major benefits of buying a home as its price can increase with time. You might have seen a boom in the property prices during the last few years. Almost 15% of the prices of the real estate increase every year due to the increase in the cost of construction because of the increase in the prices of construction materials as well as the workforce. The inflation in the real estate market can also increase the rents of the houses. In this way, you can protect yourself from the effect of inflation by buying a home with the help of a home loan.
Sense of success:
When you buy a home then you feel that you have succeeded in achieving something in your life. But you do not make one of the biggest investments of your life just on the basis of your sentiments and emotions. It is also a liability for you if you buy a home by taking a home loan from some financial institution. So you should also include it in your investment portfolio along with enjoying its benefits.
Tax benefits on the repayment of principal:
The federal, as well as State governments as well as financial institutions, offer various types of tax and other benefits on the on-time repayment of the principal amount of the home financing. When you fulfill certain prescribed conditions then you can deduct a specific amount of principal from your gross annual income every year till the complete principal is repaid.
Tax benefits on the repayment of interest:
State governments also allow you to claim a deduction of a certain amount of interest paid by you on your home loan to buy or construct a home while calculating annual income from that property. The interest paid on the loan before construction or acquisition of the house can be deducted in 5 equal installments from the year of acquisition of the home from your income.
Low rate of interest:
As compared to other types of personal loans rate of interest of home financing remains low as it takes a long time to repay a home loan. During this long term, the rates of interest can rise and fall several times. So, usually, people apply for a home loan with fluctuating interest rates so that its rate of interest decreases with a fall in interest rates in the real estate market. Interest rates usually fall due to some financial policy of the country or the Central bank of the nation. In this situation, you will have to pay interest on your home loan at a lower percentage. It can also allow you to own your home by repaying the loan completely.
In this way, home financing can provide you a number of advantages along with a home of your dreams. You can increase these benefits to a considerable level just by managing your home loan actively.