Why to have a Home Loan and Never make an early Payment?

The Finance Guru is back with yet another informative video about Finance for Non-Finance that will solve all your queries about things that should be kept in mind while applying for a home loan. Whether to pay EMI’s on time or Whole Sum Amount at Once…?

Ladies and gentlemen welcome back to finance tube and today’s topic of discussion is very very controversial we are saying why to have a home loan and never make it only payment to it are we serious yes we are very serious friends a home loan is the cheapest loan that you can take on this planet earth let’s talk about situation in our country india in india home

Loan is available anywhere between ten eleven and twelve percent now what happens when you take a home loan here you get a home of course you do second you have to pay interest let’s assume 12% for the sake of simplicity per annum now on this 12 percent the first benefit that you get is tax break actually it’s the second one but let’s take it as a first benefit

Tax break how does a tax break help you assuming you are in a 30% tax lab you save straight 30% of 12 percent 30 percent of 12 percent is roughly 3 so your post-tax interest cost becomes single-digit that is nine percent now nine percent for annum is the cheapest money available in the country if you were to go out there and ask a moneylender how much will you

Charge for a loan he would say 18 percent or one and a half percent per month we in our native language call it a taka so a single digit interest cost compare that with inflation which is always double digit in my previous videos i have explained that how inflation is calculated wholesale price and consumer price and if you take the two thousand five figures which

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Is quite all now from 2005 till 2014 we’ve seen that inflation and especially consumer price inflation is in double-digit now why is inflation a benefit and not a cost because you are borrowing and not lending when you borrow money let’s say 100 rupees from a bank you are getting some purchasing power worth hundred rupees when you repay this money to bank along

With interest with a single-digit you end up repaying much less purchasing power than what you caught by because this double-digit inflation erodes the interest benefit of the bank that means you are better off borrowing in scenarios where economy is reporting a double-digit inflation so inflation plus tax break also there is a negative opportunity cost is truly a

Benefit and not a cost because if you were to put your own money to buy a house i am sure you would not invest your own money at any place which would give you single-digit return because your money itself is very expensive if you ask me what is the cost of your money simple the cost of your money is inflation every year hundred rupees that you just keep in your

Pocket loses the value the purchasing power of your 100 rupees goes on reducing day by day which i am sure you experience it on a daily basis so it makes more sense in putting borrowed money in buying a house rather there your own money because your own money has a opportunity cost so when you put together these three benefits it makes a lot of sense to at least

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Have one housing loan per family and just continuously pay the ami and never think of early payment or prepayment because that actually helps you to insure yourself against inflation because you are using bank’s money you are better off so a saving which is diverted towards a home loan emi is actually more productive then are saving which is putting fd because fd

Gives you single-digit return and i have told time and again in my videos that there is tax of 30% on fb so fd gives you a miserable return of 5.6% whereas here you would have three to four percent of saving on the inflation itself so it makes sense in taking a home loan just because a it is the cheapest loan available be the opportunity cost is actually negative

And see you save tax and have a hedge against inflation my question is very simple in this entire transaction how do these three people make money a the bank whose credit card my friend produced and swiped at the shoe

Transcribed from video
Why to have a Home Loan and Never make an early Payment? By Finance Tube

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