There are lots of arguments for and against buying a home early in life, but the rationale for doing so is, in fact, the strongest and most convincing.
1. In the first place, the longer the tenure of a home loan, the lower the EMIs are. EMIs are calculated on the basis of the loan amount and how long the borrower can logically repay the home loan. In India, the retirement age is 65, and banks will consider this as the age by which the borrower must under any case close the home loan if he or she has not done so already. The longer one defers the decision to avail of a home loan to buy a property, the bigger the EMIs become.
Also, it is easiest to get approved for a home loan when one is young. Lenders are eager to provide home loans to young people because they are at the beginning of their careers, and will doubtlessly grow in them over the ensuing years. Their financial viability – and therefore their future ability to service a home loan – is therefore at its highest point.
2. In fact, the eligibility for a home loan is even higher for young married couples taking out a joint home loan. This is by far the most desirable lending scenario for banks. They are assured that two instead of only one income stream will back the home loan proposal, and the fact that two instead of one borrower are involved decreases their risk. Taking a joint home loan also helps a couple to close down the financial commitment of a home loan much faster, allowing them to focus on other investments earlier in life
3. Another advantage of purchasing a home early in life is that it becomes easier to pay off the outstanding amount on a home loan with accumulated savings later in life. This opens up the opportunity to upgrade to a bigger, better-located home is the future – which is what most Indians aspire to do at some point.
4. Today, many newly-married couples are deferring their plans to have children until they have had a chance to enjoy some unfettered years together. Such a decision also works very well for such couples from the point of view of home purchase. It means that they can make a big down payment on their home before children and their education become an additional financial responsibility. A bigger down payment reduces the EMI burden, meaning that they can close their home loans faster.
5. It is also important to note that the earlier one buys a home, the longer it has to appreciate in value. Given that the annual appreciation of a well-located residential property can be to the tune of 15-20%, this results in a huge incremental increase of the investment value of such an asset.
6. It also makes much more sense to invest one’s hard-earned money in an appreciating asset rather than pay monthly rentals for which there are no returns at all. Repayment of a home loan also brings with it the financial advantage of income tax breaks. These are an added benefit which the Indian Government has provided with the express purpose of encouraging young citizens to invest in self-owned homes and thereby safeguard their and their children’s future.
7. Finally, it makes much more sense to pay monthly EMIs on a home loan, into an investment-grade asset, rather than pay monthly rent which is nothing but an expense with absolutely no returns on investment.
The above reasons should present a convincing argument for making the important decision of buying a home early in life. The New Age ‘logic’ that it is better to live on rent simply does not hold water if one considers the multi-faceted advantages of investing in a self-owned home while one is young. It is true that it requires financial discipline to service a home loan, but this very desirable quality can never come too early.
BY- Kishor Pate, CMD – Amit Enterprises Housing Ltd.
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