Should you buy your property on a bank loan

Many experts are of the opinion that even if you have the funds to purchase your dream house, you should still opt to buy the property through a bank loan.

There are several advantages a bank loan would offer a property buyer. A property buyer in most cases is unaware and doesn’t have the time to go about checking the authenticity of the title and various other legal documents of the property.

Banks on their part conduct a thorough check on the property and only after satisfying itself with all the legal aspects of the property process the loan application.

Apart from the fact that a bank’s due diligence amounts to a legal health check for the property, there are significant tax benefits involved in purchasing a home through a home loan. Also, more importantly, home loans are often the only financially viable means for someone from the middle class to purchase a home in the first place.

The Income Tax Act, 1961 provides tax benefits for assesses who have taken home loans. The mortgage payments done by the home loan borrowers help him get some tax deductions from his total taxable income.

The monthly mortgage payments comprises of two parts that is the principal and the interest component.  Both the principal repayment and the interest component qualify for tax deductions. Under section 80C of the Income Tax Act, the borrower can get a tax deduction for a maximum amount of Rs. 1.5 Lakh for outstanding principal paid each year under this section irrespective of his tax bracket.

Under section 24 (b), the borrower can claim tax deductions for a maximum of Rs.2 lakhs per annum for the interest paid.

Purchasing a property through a bank loan also provides for financial efficiency to the property buyer. The bank loan is available at 10.5 – 11 percent interest rate today. Also if you factor in the inflation figures of around 7 – 8 percent and the rest in tax savings, it’s a win – win situation for the buyer.