Gone are the days when people used to start planning their home purchase once they were ‘settled’ in life. Today, a lot of youngsters prefer to buy their own house rather than staying in a rented one. Buying your own house is indeed exciting but it requires careful financial planning as the right approach can help one save a lot of money.
Here are few ways using which you can save money while buying a house:
1. Tax savings on the home loan
While buying a home, one should consider applying for a home loan for the tax benefits that it offers. In addition to the principal component, the interest on the home loan is also tax-deductible. One can claim tax deductions of up to Rs 1.5 lakhs against the principal repaid under Section 80C and can also claim up to Rs 2 lakhs each against the interest paid under Section 24b.
Moreover, having a woman co-applicant as the first borrower can significantly bring down the amount of the payable interest. There are various Banks that provide concessions to women applicants. These tax relaxations can be availed on stamp duty fees for the registration of the house along with the benefits on the principal amount and the interests. Also, if both the spouses are working, then they can apply for a loan jointly and can become eligible for a greater loan amount.
2. Search for a bank with low interest rate
Almost every bank offers competitive rates and attractive offers for home loans these days. However, it is essential to conduct due diligence and to choose the bank that offers the lowest interest rate. As mentioned in the first point, many banks offer lower interest rates for female borrowers which can vary from 0.01% to 0.15%. Even if this looks like a small percentage, home loans are usually borrowed for long tenures of 15-25 years and thus, such small percentages can add up to substantial savings.
Pradhan Mantri Awas Yojana (PMAY)
The Pradhan Mantri Awas Yojana (PMAY) was launched with an aim to help citizens buy their homes at concessional rates. Provided that one meets all the criteria laid down by the government, the first-time home buyers can save money under the PMAY Credit-linked Subsidy Scheme (CLSS). For E.g. If female borrowers take a loan of Rs 20 Lakh for 25 years with a 10% rate of interest and if the bank offers a 0.15% discount on the rate of interest, she can save up to Rs 2.70 Lakh over the period of 25 years. They can get interest subsidy benefits of up to Rs 2.67 lakhs against the home loan for buying affordable homes. So, if you are someone looking to buy your first home, the CLSS benefits can definitely help you save a lot of money.
4. Be cognizant before buying a home loan insurance from the lender
While borrowing a home loan from a bank, there is no obligation to purchase insurance coverage at the same time and from the same bank. Neither the law nor the RBI nor IRDAI has made it mandatory to do so. Purchasing the insurance cover is at the sole discretion of the buyer and the buyer can always purchase insurance from any insurance company even at a later stage. A home loan that is bundled with insurance generally includes a hefty premium payout and one may not be able to port the insurance in case he/she decides to switch the lender.
5. Choose the interest rate with the lowest spread
Unless it is specifically mentioned in the agreement, the spread is a key component of the interest rate. It usually does not change over the term of the loan. The base interest rate is volatile and changes at periodic intervals to reflect the changes in repo rates and market conditions. Thus, borrowers should choose the lender with the lowest spread, as the market forces and regulatory policies would eventually bring the interest rates at par.
Also, to the home buyers’ delight, the cost of owning a home in Maharashtra has reduced as the Maharashtra Government has slashed the stamp duty charges on sale deed documents by 3 percent between September 1 and December 31 this year.
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