For many, buying a house is more than just an investment – it's a significant milestone that symbolises stability, success, and personal growth. However, not everyone can pay for a property upfront, which is where home loans come into play. But this brings us to an important question: is a home loan a need or a necessity?
Let’s delve deeper into what a home loan is, the reasons to consider it, and when it can be considered a true necessity.

What Is a Home Loan?

A home loan is a financial product offered by lending institutions to individuals who wish to purchase or build a home. This loan is typically secured against the property being bought or constructed, meaning the lender holds it as collateral until the loan is fully repaid. The repayment period generally ranges from 10 to 30 years.
Borrowers repay the loan in monthly instalments, known as EMIs (Equated Monthly Instalments), which include both the principal amount and interest.

Reasons to Consider a Home Loan

• Path to Homeownership: For most individuals, paying for a house in full using savings alone is unrealistic. A home loan provides a practical avenue to purchase property without depleting financial resources. It allows buyers to repay the amount in instalments over time, making homeownership more accessible and manageable.
• Leveraging Future Income: Property values tend to appreciate over time, particularly in prime or growing locations. By securing a home loan, borrowers can acquire an asset that may yield significant returns or provide long-term financial security.
  
• Tax Benefits: In India, borrowers can claim tax deductions on both the principal and interest components of their home loan under the Income Tax Act. Section 80C allows a deduction of up to INR 1.5 lakh per year on principal repayment, while Section 24(b) provides a deduction of up to INR 2 lakhs annually on interest payments for a self-occupied property.
  
• Building Credit: Taking out a home loan and making timely repayments helps build or improve one’s credit score over time, which can be beneficial for future loan or credit applications.

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When Can a Home Loan Be Considered a Necessity?

• Inability to Pay for a Home in Full: With rising property prices, most individuals find it unrealistic to save enough to buy a home outright. Since wages may not always keep pace with real estate inflation, a home loan becomes essential for purchasing a property without waiting decades to accumulate the required funds.
• Achieving Stability and Security: Owning a home provides a sense of stability and security that renting cannot match. Renters remain subject to rent hikes, lease terminations, and other uncertainties. In contrast, homeownership ensures control over one’s living space. A home loan, therefore, becomes a crucial means to achieve this sense of permanence and peace of mind.
  
• Rising Rent Prices: In many urban areas, rent prices continue to climb, making it increasingly difficult to afford housing in desirable neighbourhoods. A home loan offers a viable solution, allowing individuals to escape the cycle of rising rents.
• Investment in an Asset: A home loan allows an individual to buy an asset that, over time, is likely to appreciate. Real estate is often considered a relatively safe investment, with property values generally trending upward. The right property can offer not only the benefits of homeownership but also potential returns when sold in the future.
• Retirement Planning: For many, owning a home is a critical component of long-term retirement planning. Paying off a home loan during one's working years ensures that, upon retirement, the individual owns a property free from mortgage obligations. This significantly reduces living expenses in retirement.

Conclusion

A home loan can be both a need and a necessity, depending on individual circumstances. For many, it is the most practical way to purchase property and provide stability for their families. However, it is crucial to assess personal financial health, market conditions, and long-term goals before committing to a home loan.

Exploring home loan options? SMFG Grihashakti offers financing of up to 90%* of the property’s value, with attractive interest rates and flexible repayment tenures. Check your eligibility, estimate your EMIs, and apply online today!