“Yes” and “No”. If you look at home –buying as a one-time affair, you may as well reach out for most of the amenities offered by developers serving different market segments.
If the purchase of a home is becoming a money-guzzler — complete with down payment, availing up to 85% home loan amount, expensive interiors, high property tax and an upgraded lifestyle with high maintenance fees to boot — it is better to cross out luxury features like swimming pools. Simply because there are other facets to life such as retirement, education and healthcare which beg for prudent and early financial planning.
In other words, allocate part of your savings from income for a major purchase like a home. If you are rich enough, a swimming pool and attendant luxury amenities will still be within your purchasing power. Be it through your own savings or your eligibility as thrown up by the Finserv MARKETS eligibility calculator to avail a large home loan, no one can deny you that dip in the lap of luxury.
Risk -funding Your Luxuries
However, instead of aspirational needs let us consider the question, “Is the premium commanded by a swimming pool really worth it?” from a purely financial planning angle.
Taking a home loan for an under-construction property with a swimming pool will mean income tax deduction is limited to Rs 30,000 per year. The deduction is Rs 2 lakh for fully constructed properties. Even so, it may not be commensurate with the expenses that go with a fully-loaded house.
Here is why: Let’s say you take a home loan of Rs 75 lakh for 20 years at 8.5% interest to finance an all-frills home; you will have to shell out an EMI of Rs 65,087. The interest that you will pay over the tenure of the loan will be a whopping Rs 81.2 lakh.
As opposed to this, if you go in for a more modest loan of Rs 50 lakh to finance a home that doesn’t come with over-the-top amenities, your EMIs will be Rs 43,391 a month, with the interest payments over the lifetime of the loan coming down to Rs 54.14 lakh.
Further, the savings per month of Rs 22,000, if invested in a Unit Linked Insurance Plan (ULIP), can fetch you a yield of Rs 49 lakh over the next decade at an assumed return of 12%. In this case, if you have the foresight buy a ULIP from say Bajaj Allianz sold on Finserv MARKETS you will still have the house that you aspired for and a bonus too in the form of a healthy RoI on your investment. You also get insurance and ULIP tax benefit under the same Section 80 C that provides relief for home loans. Clearly, this is a win-win for you.
Don’t Loan Your Future Away
Of course you can even take a huge home loan to live your dreams. However, with financial needs and goals changing as life progresses, it is better to keep your debt burden light. There is better wisdom in adopting an investment strategy that can be attuned to your lifecycle needs and here is an illustration:
Rishi was a successful businessman in Secunderabad. He was very status conscious and bought a luxury apartment with a huge loan. His daughter’s marriage, parents’ healthcare and a sudden business slump ate into his resources. Fortunately for Rishi, he had opted for the Wheel of Life investment strategy linked to ULIP which allows the policyholder to allocate premiums among five funds in a pre-defined ratio.
If you opt for a life stage-linked ULIP, you can change the ratio as the policy ages towards maturity to suit your risk appetite and financial needs.
Also available with ULIP is an option to choose your own portfolio of eight funds. You are free to switch between these eight funds based on market fluctuations and allocate premium payments on your discretion or choice.
Final Plunge: So go ahead and jump into that swimming pool, provided you have a ULIP-backed high return in your kitty that not only fulfills your dream but does not let you sacrifice other life goals and also empowers you to practice financial prudence through timely ULIP tax benefit.
Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all less than one roof – anytime, anywhere!