As from the title itself it is very clear that whatever the conclusion of this article will be, 50% chance that you’ll not be aligned with it.

But as like other articles or information on the topic, you won’t be disappointed at the end by having a very neutral answer.

In this article you’ll get to know why you should get the home loan and who are the 5% of people who should not get the loan.

Ok, so first thing first “what is a home loan?’, because I need to rank on Google for your search terms as well.

What is a Home Loan?

A home loan is money that you borrow from a bank or a financial institution to buy a house or property. This is a secured loan in nature, and you’ll put your property papers as collateral as well.

This loan allows you to purchase the home now and pay for it over a long period of time; generally people take it for 20–30 years.

However, it’s not just about paying back the money you borrow. You also need to pay an additional cost called interest, which is a fee for using the bank’s money. Of course, I hadn’t needed to explain this, because of interest it is called ‘Loan’.

A home loan typically requires you to repay the money in monthly installments, which include both the borrowed amount (called principal) and the interest. Home loans are one of the most common ways people buy homes, as real estate is usually too expensive to purchase outright.

Why Do People Take Home Loans?

Real estate is a significant investment, and most people don’t have enough savings to buy a home with cash. A home loan helps bridge this gap by providing the money upfront, so you can buy the house and repay the loan gradually over many years.

Many people take home loans for the following reasons:

• • Affordability: You can buy a home even if you don’t have the full amount saved.
  • Tax Benefits: In some countries, like India, you get tax benefits for paying home loan interest and principal.
  • Real Estate Investment: A house can increase in value over time, making it a profitable investment.

This article will help you decide whether a home loan is the right choice for you by looking at how they work, the benefits, and the risks.

Do You Know How Home Loans Work?

I think understanding how home loans work is essential before deciding whether to take one or not. Let’s start this by understanding some basic components:

The Basics of a Home Loan

Principal:

This is the total amount of money you borrow from the bank. 

For example, if you need ₹50 lakhs to buy a house, most of the banks will sanction 80-85% of the price. If the bank sanctions ₹40 Lakhs, then this will be your principal amount and the rest ₹10 Lakhs you have to pay from your wallet.

Keep in mind that banks will not sanction the amount required for the registry and other govt. Charges. So plan you finances accordingly.

Interest:

This is the extra money you pay the bank for lending you the money. It is calculated as a percentage of the principal. 

Generally it may lie to 7-9% p.a. To calculate the EMI you can use this tool and check the EMI amount as per the interest and loan tenure.

Tenure (Loan Term):

This is the amount of time you have to repay the loan. Home loans usually last 15, 20, or 30 years. A longer tenure means smaller monthly payments but more total interest over time.

EMIs (Equated Monthly Installments):

Your EMI is the fixed monthly payment you make to the bank. It includes both the principal and the interest. The EMI remains the same throughout the loan tenure if you have a fixed interest rate.

Difference in Fixed and Floating Interest Rates

Fixed Interest Rate: The interest rate remains the same throughout the loan period. Your EMI will be constant, making it easier to plan your finances.

Floating Interest Rate: The interest rate can change based on market conditions. This means your EMI can increase or decrease over time. Floating rates are often lower than fixed rates initially, but they come with uncertainty.
Ever heard of repo rate? Here it will come into your life. As soon as repo rate will be increased your interest will increase as well.

Eligibility for Home Loan

Before approving a home loan, banks will check several things to make sure you can repay the loan:

Income: You need a steady income that is high enough to cover your EMIs.

CIBIL Score: This is your credit score, which shows how well you’ve handled loans and credit in the past. A higher score makes it easier to get a loan with a good interest rate.

Down Payment: Banks don’t usually lend the full price of the house. You’ll need to pay a part of the house price upfront, usually 10-20% of the total amount. This is called the down payment.

Reasons to Consider Taking a Home Loan

A home loan can be a good financial decision for many people. Here are some general reasons why you might want to consider taking one:

Buying Your Dream Home

As explained from the heading itself, you’ve found the house which seems perfect for you, but as like 95% of Indians you’re not very comfortable to pay in one go.

Home loan allows you to purchase the property now and pay for it over time. This means you don’t have to wait years to save enough money and risk the house going to someone else.

Real Estate Investment

Real estate often appreciates in value over time, meaning the house you buy today could be worth much more in the future. A home loan allows you to invest in property, which could become a valuable asset.

Even if you’re paying interest on the loan, the increase in the value of the house can make it a profitable investment. You can consider EMI as the investment per month.

Tax Benefits

In many countries, including India, there are significant tax benefits for people who take home loans.

Tax Deductions on Interest:

Under Section 24(b) of the Income Tax Act, you can claim a deduction on the interest paid on your home loan (up to ₹2 lakhs per year for a self-occupied property).

Tax Deductions on Principal:

Under Section 80C, you can also claim a deduction on the principal repayment of the loan (up to ₹1.5 lakhs per year). These deductions can significantly reduce the overall cost of the loan.

Stable Long-Term Living

A home loan allows you to live in your own home, giving you stability and freedom. Unlike renting, where you might have to move frequently, owning your home means you can stay as long as you want. 

You can also make improvements and renovations to suit your needs without needing a landlord’s permission.

Building Equity

When you rent a house, your monthly payments don’t give you anything in return. With a home loan, every EMI you pay helps reduce the amount you owe on the house, increasing your ownership of the property. This is called building equity. Over time, you’ll fully own the house, which will become a valuable asset.

Reasons to Avoid or Delay Taking a Home Loan

While home loans have their advantages, they’re not for everyone. Here are some reasons why you might want to avoid or delay taking a home loan:

High Interest Rate

One of the biggest downsides of a home loan is the interest you have to pay. Over the years, the interest payments can add up to a large amount. So, in the case of a home loan you need to be very careful with the interest rate. The lower the better.

Financial Instability

If your income is unstable, a home loan can become a burden. Missing EMI payments can lead to penalties, hurt your credit score, and, in extreme cases, result in the bank taking away your house. 

If you’re unsure about your financial future, it might be better to wait until you have more stability or in the simple calculation, EMI should not be more than 40% of your regular or lower income (in case of the unstable income per month.)

Commitment to Long-Term Debt

Home loans are long-term commitments, often lasting 15 to 30 years. If you prefer financial flexibility and don’t want to be tied down by long-term debt, a home loan might not be right for you. 

You’ll need to make regular payments for many years, which can limit your ability to save for other goals. But this should not be the deciding factor for home loan, you need to make a financial goal and decide whether you want the ‘Home’ or not. If the answer is yes, then how to manage the loan for a longer period of time.

Better Alternatives

Sometimes, renting might be a better option. If you’re unsure about where you’ll be living in the next few years or if property prices are too high, it might make sense to rent for a while and save up before buying. Additionally, if interest rates are currently high, waiting until they come down could save you a lot of money in the long run.

Factors to Consider Before Taking a Home Loan

Before deciding whether to take a home loan, there are several factors you should consider:

Your Financial Stability

Do you have a stable income that’s enough to cover the loan repayments and your other expenses? If your job or business is uncertain, you might want to delay taking a loan until your finances are more secure.

If you’re in a private job, suggesting you be prepared with money in the bank for the 6 months runway. In case, if you resign or get laid-off from your current company you might need 3-4 months to get the new job in the current market condition.

Your Long-Term Plans

Are you planning to live in the same city or area for the next 10-20 years? 

If you think you might move to a different city for work or other reasons, it might not make sense to buy a house now.

Down Payment and Savings

Do you have enough money saved for a down payment? Most banks require you to pay 10-20% of the house’s price upfront. Apart from it you need to pay all the process and govt. Taxes as well (this could be ~10% of you property value).

Additionally, you’ll need some savings left over for emergencies. I’ll suggest to have the health insurance, Life insurance and other insurance as well for you and all individuals who are dependent on you.

Interest Rates

Are interest rates currently favorable? 

If interest rates are high, it might be worth waiting until they come down to save money on interest payments.

Loan Tenure

How long do you want to be repaying the loan? A shorter loan tenure means higher EMIs but less total interest paid, while a longer tenure means lower EMIs but more interest over time.

Prepayment Options

Does the loan allow you to make prepayments?

If you get a bonus or extra income in the future, being able to prepay part of the loan can help you reduce the total interest and pay off the loan faster.

The Pros and Cons of Renting vs. Buying

Renting a Home

• • Pros:
    • Flexibility to move easily if your job or life situation changes.
    • No responsibility for property maintenance or repairs.
    • No need for a large down payment or long-term commitment.
  • Cons:
    • You don’t build any ownership in the property—your rent payments go to the landlord, and you never own the house.
    • Rent can increase over time, especially in high-demand areas.
    • You may be limited in making changes or renovations to the house.

Buying a Home (with a Loan)

• • Pros:
    • Every EMI you pay helps you build equity, meaning that over time, you own more and more of the house.
    • You have the freedom to customize and renovate the home as you like.
    • Property values usually increase over time, meaning the home could be worth much more than you paid for it in the future.
  • Cons:
    • High upfront costs, including down payment, registration fees, and other expenses.
    • Long-term commitment—you’re tied to a mortgage for 15, 20, or even 30 years.
    • The value of the property can go down, meaning you might not recover your investment if you need to sell.

Tips for Managing a Home Loan Successfully

If you decide to take a home loan, managing it responsibly will help you avoid financial stress. Here are some tips for handling a home loan:

Choose the Right Loan Amount

Only borrow what you can comfortably afford to repay. Your monthly EMIs should not take up more than 30-40% of your monthly income. 

By borrowing more than this you can afford can lead to financial strain and missed payments.

Save for a Bigger Down Payment

The bigger your down payment, the smaller your loan amount will be. This reduces your interest payments and makes your EMIs more manageable. 

A larger down payment also shows the bank that you are financially stable.

Make Prepayments When Possible

Whenever you have extra money (like a bonus or tax refund), consider making prepayments on your home loan. Prepaying reduces the principal, which lowers the amount of interest you’ll pay over the life of the loan. 

However, check if your loan has prepayment penalties before making additional payments.

Opt for Home Loan Insurance

Home loan insurance is a policy that ensures the loan is repaid if something unexpected happens, like job loss, illness, or death. 

This ensures your family isn’t burdened with the loan if you’re unable to repay it.

Keep an Emergency Fund

Always keep some savings aside for emergencies, such as job loss or medical expenses. This fund should be able to cover at least 3-6 months of EMIs to ensure you don’t miss any payments, which could lead to penalties or damage to your credit score.

Conclusion

Weighing Your Options

Taking a home loan is a big decision that can help you achieve the dream of owning a home, but it comes with long-term financial commitments. 

A home loan is a good idea if you’re financially stable, planning to stay in one place for a long time, and are comfortable with the monthly EMI payments. 

Owning a home gives you stability, the opportunity to build equity, and potentially a good long-term investment.

Consider the Alternatives

On the other hand, renting could be a better option if you’re uncertain about your future plans, if property prices are too high in your area, or if you don’t want the long-term commitment of a mortgage. 

Renting provides flexibility and can be less stressful in the short term.

Make a Smart Decision

Before taking a home loan, carefully assess your financial situation, long-term goals, and the current market conditions. Compare different loan options and make sure you’re comfortable with the loan’s terms and monthly payments.

A home loan can be a great financial tool, but it’s essential to approach it with careful planning to ensure that it works for your future and financial health.