When faced with a choice between paying cash or taking out a home loan for a purchase of Rs 1 crore home, you may feel the need for some honest guidance to help you choose which course of action will be beneficial for your finances.
Chartered accountant Ruchita Vaghani discusses the advantages and disadvantages of both cash and loan financing while purchasing a house for Rs 1 crore in hear X post. This could help you make a wise choice when purchasing a home.
Pros of buying Rs 1 crore home in cash
In her tweet, Ruchita writes about the pros of buying a Rs 1 crore home in cash. According to her, if you buy a home with your own funds, there will be:
*No EMI burden and peace of mind.
*No interest cost and immediate ownership.
*No risk of rising interest rates and strong negotiating power.
Pros of buying Rs 1 cr home on loan
Ruchita says that there are also advantages to buying the same home with a home loan. According to her, if you buy the same 1 cr home on a loan, there will be:
*Liquidity safety and savings would be free for investment.
*Tax benefits of Rs 2 lakhs per financial year on the interest paid.
*Tax benefit of up to Rs 1.50 lakh on the principal paid.
*Inflation advantage since you will repay the loan with ‘future money’.
*Potentially higher returns on investment than the loan interest paid.
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Cons of purchasing home with cash
Ruchita says that there are some disadvantages of buying a home with own funds, which are:
*Savings will be locked in one illiquid asset.
*You will lose out on potential investment returns.
*There will be limited liquidity left for emergencies.
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Cons of purchasing home on loan
Ruchita says that the disadvantages of buying the same home with a home loan include:
*The EMI stress will be Rs 86,000 per month for 20 years.
*The borrower will pay Rs 1.07 cr in interest and their total outgo will be Rs 2.07 cr.
*There will be a risk if investments underperform.
*There will be a dependency on stable income.
When to buy home with own funds?
Ruchita recommends people to buy a home with their own funds if:
*They are risk-averse or near retirement
*Peace of mind and debt-free living matter more than returns.
*They don’t want EMI burden or interest outgo.
When to buy home with loan?
Ruchita recommends people to buy a home with a loan if:
*They are young (<40) with stable income.
*They can invest the remaining savings smartly (equity, mutual fund, business).
However, one must note that investment guides are not one size fits all guides. Despite a large range of dos and don’ts, very individual logistics are different. Their long term and short term goals, commitments are different.