Pros and Cons of Home Loans

Home Loan is a credit to a consumer for the purchase or transformation of a private immovable property he owns or supposedly to own. Termed as a mortgage at various places, it is a lien that uses property security for the repayment of debt. It provides money necessary to buy the property. The lender holds the title or deed of the property until the loan amount is paid with interest.

There are various types of home loans shaped by the borrowers' need and financial status. Each type offers you certain advantages; and they also come with their own shortcomings.

Normally, there are few definite pros and cons of home loans of its each variety.

Pros –

(i) Home loans offer you a large amount of money ready to buy a home. It does not make you wait for money to buy a home when you are in need. The loan offers you a chance to buy a home instantly though you pay later. The loan payment system is suitable with your monthly budget. You have to pay the money in installment.

(ii) Home loans interest may be tax deductible. However, the amount of tax deduction is a percentage-based calculation. This means, if you are in a higher income bracket, this may come as no deduction at all.

(iii) Home loans are very suitable for those who are in need of money to buy a home. It has revolutionized the opportunity to buy a new home for the people with limited means. Its consider interest rates save you from a high interest rate credit cards' payment.

(iv) Few home loans allow borrowing money, which brings a total indentedness on the home up to 125% or more of its value.

(v) You can pay off the debt as monthly installments at a fixed rate in a fixed period of time.

Cons –

(i) Home loans are very risky if not paid down. If you fail to pay off the debt in time, this may end up with the encroachment of your home by your lender.

(ii) As you buy the home it provides you the situation where you employ the home as security in gaining a loan of wanted wealth against that collateral, by taking a secondary mortgage. This lets you borrow against your house every time you may have to. But as you have already bought the home with a home loan, so on every following secondary mortgage payments, you are bound by the terms and conditions of your home loan.

(iii) Home loans are very risky for people who are facing frequent career changes. Because, if their income drops, so they risk their home; on the other hand, if the home's value drops, they end up owed more on the home.

(iv) Home loan rate, in few cases, can be expensive in comparison to other types of loans.

(v) At many places you may not be able to deduct all the interest on the home loan.

Source by Martin Lukac

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