Have you applied for a home loan early in your career? If the answer is yes, then here are some aspects that you should keep in mind, including the pros and cons.
Purchasing your own home is naturally equivalent to greater financial and emotional security and wellbeing. However, should you be making your property investment early on in your career? Here are the advantages and disadvantages that you need to consider.
Table of contents
Advantages of Early Home Loans
Higher Time in Hand
When you invest early on in a property, it gives you more time and scope for investments. You can take a home loan for a longer amount of time, equating to lower EMIs in turn. You can get a loan for 25-30 years if you apply for the home loan before your 30s. You can get loans more easily with more working years and negligible liabilities/debts. You can also jointly take a loan if you are married. This will help you get a higher loan amount. You can also comfortably save up more money over a decade and more, ultimately clearing off the loan even faster. You can even invest in another real estate asset for earning rental income or simply as a second home. If you have more time in hand, then you may start with a starter unit that is more affordable and ultimately upgrade to a bigger and better property. You can start early and not have to take care of responsibilities at this time including taking care of your parents and children which come slightly later in your lifetime. Your asset will eventually appreciate over time.
Rental Savings
If you purchased a home for self-occupation, then you will save more money on rental costs. The money that would have otherwise been spent on rentals may be invested in building an asset in turn. If you rent out your property, then you may earn rental income likewise.
Tax Deductions
All home loans have eligibility for getting tax deductions under Section 80C. You will get deductions up to Rs. 1,50,000 on the principal repayment of the home loan. You can also get up to Rs. 2 lakh in interest deductions under Section 24. You can also get an extra tax deduction of Rs. 1.5 lakh under Section 80EEA. You can also claim pre-construction interest paid in five equal installments beginning from the year of construction of the property. If a loan is jointly taken, every borrower may get deductions for the principal and interest components alike.
Building an Asset
If you are purchasing your own home, it clearly means that you are building an asset for the future. You will always have this financial safeguard which will add to your net worth and ensure future security for your family as well. Real estate investments may help you diversify greatly as far as your portfolio is concerned. However, you should ensure that all other objectives are fully met. You can initially invest in real estate for earning rental income.
Disadvantages of Early Home Loans
Uncertain Factors
If you are employed, self-employed or an entrepreneur, this is the time when you may face uncertainties in your career/profession. Sudden job losses, changes or pay-cuts may lead to severe issues if you are repaying a home loan. You will have to keep your EMI payments uninterrupted even if you change your job, take a sabbatical, lose your job or take a salary cut. Not paying the EMI for three months will lead to the loan being listed as a NPA (Non-Performing Asset). It will also impact your credit score badly. The thumb rule is to invest a maximum of 25% of your annual income into real estate as per experts. Real estate for investment is only an option that is feasible for those in the middle or higher salary slabs.
Lifestyle Aspects and Peace of Mind
At an early professional stage, it is harder to raise the down payment needed for the home loan. Covering the down payment and other associated costs may lead to a sizable financial burden, leading to stress and lack of mental peace. Money for building an emergency corpus may lead to sacrificing on lifestyle heads including travelling, eating out and even buying a vehicle for example.
Transfers or Locational Shifts
At an early stage, professionals may have to take transfers or move to other cities. Hence, it will be hard to simultaneously keep paying the monthly EMI for your property and pay rent in the new city. Relocation may also be difficult if you are already stuck to a property in a specific location. At times, climbing up the career ladder may require relocation as well.
You should keep all these factors in mind while planning to apply for a home loan. These are the advantages and disadvantages worth noting above all else.
