Buying a home is the biggest and probably the costliest financial decision we make in our lifetimes, a momentous choice that can shape our futures forever. While it feels good to own your own home for many emotional reasons, the benefits of homeownership also come with significant costs and limitations affecting our financial health.
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Benefits of owning a home on our financial health :
While the biggest benefit of owning a home is long-term financial security, there are also tax benefits as well as possible appreciation benefits that we can have on owning a home.
1) It’s a good long-term investment. History shows a constant fluctuation of overall home prices and sometimes even periods of decline or flatness, the long-term trend has been one of steady appreciation., Historically, home prices have appreciated on an average of 8%-10% year on year and maybe even more in pockets of Indian homeowner living in different cities in India at different times. Hence buying a home helps enhance your wealth over time!
2) The home loan principal and interest repayment also fetch attractive tax benefits. While you can claim 1,50,000 towards principal under Section 80C, you can avail of additional tax benefit on the interest paid on the home loan EMI up to a maximum of 2 lakhs under Section 24. And if you are a joint holder in the property, the icing on the cake is that all joint holders can take benefit of both these deductions each year.
3) You can save up on the rent that you are paying and instead direct such rental payments to the EMIs of the home loan, this will help you in building equity over some time.
However, we need to concentrate more on our finances after buying a home, since savings become more important than ever. Defaulting or missing EMIs can lead to paying penalties as well as adversely affecting your CIBIL score. Such a huge decision can also affect your retirement plans, education savings for your children, insurance needs etc.
Important financial actions that can safeguard your financial health after buying a home :
1) Always have an emergency fund for up to 9-12 months of your income, this will help you to make your EMI payments on time in case of any adversity.
2) Ensure that the EMI payment should not exceed 30% of your monthly income, as any excess could stress you mentally and also cause a burden on your monthly household expenses.
3) Have adequate life insurance, specifically, pure term insurance, this should help cover the home loan as well as your household expenses to a certain extent in case of an unfortunate event.
4) Continue with your other investments if possible every month along with your EMIs, which will help build your wealth as well help you accumulate enough for your own retirement as well as other goals. There would be times when such investments may not be possible immediately, however, you can reduce such investments in the beginning and keep increasing them with the rise in your income as EMIs would be constant.
5) You will also have to account for any urgent expenses in the future with regards to your home like repairs, painting etc, so you will need to build funds for such home-related expenses too.
A home is not just brick and mortar, it is an emotion attached to your comfort, security and also your social status. However, the monetary aspect has also to be considered when buying your home, to ensure that you are in a comfortable position to not only pay your EMIs but also lead your normal lifestyle in the interim.
Don’t forget to consult a financial advisor when making such a significant financial decision. An advisor will carefully evaluate your financial standing and help you make an effective choice regarding homeownership.
