Why Purchase a New House When You Can Improve the Old One?
Should you buy a new home or improve the old one? It is a million dollar question. Opinions can differ. The appropriate answer depends on various circumstances. Let us look at the multiple factors before pronouncing the verdict.
Your old house has a lot of memories attached to it. You have spent our childhood in the house. Hence, it is natural to have an emotional attachment towards the old house. It can become difficult to adjust to the new house and surroundings. It is like making a fresh beginning to your life. Your heart will compel you to repair your old home and continue living there. Your mind will be in favour of disposing of the old home and moving on to a new home. Weigh the options accurately before making the right decision.
The Cost of Repairing Your Existing Home
No one can dispute the emotional attachment you have with your old home. However, you should also consider the cost of repairing your existing house. Is it worth the repair? Will your old home retain its pristine glory after the repair job? What will be the cost of renovating your home? Will it affect the foundation of the structure? How are you going to arrange for the finances? Many such questions can come to your mind. You have to answer each of these questions before taking the ultimate step.
The Value of Your Old Home
Should you decide not to repair the old home, what value would the home fetch you? Will it be enough for you to buy a new home? These questions need answering. The land is an asset that always appreciates in value. The superstructure built on the ground will not have any value for the buyer. Keep this point in mind while deciding to go in for repairing your old home. Once you choose to restore your old home, you should stay in the house to enjoy the benefits. Improvingand selling off the old house is not going to fetch you anything. You can better invest in a new house.
Finance Options to Repair Your Old House
Banks have various products to finance the repairs and renovations of your old home, such as Personal Loan, Loan Against Property and Home Loan. However, the rates of interest on the Personal Loan and the LAP are comparatively higher than the Home Loan interest Rates. Note that you get income tax benefits on such Home Loans for renovation. You get the benefit of a deduction on the interest component under section 24 of the IT Act 1961 up to a maximum of 30,000. You do not get any benefit on the repayment of the principal amount under section 80C of the IT Act 1961. This factor should influence your decision to purchase a new house instead of repairing the old home.
Costs Involved When Purchasing a New House
We have seen the financing options available for repairing your old home. Let us now look at the financing options for your new home and the additional cost you would incur.
a. The cost of your new home will be much more than what you would incur in repairing your old home. You have banks and NBFCs (Non-Banking Financial Companies)offering Home Loans for acquiring new houses.
b. You have to bring in your share of the cost of the new house in the form of cash margin. You have the option of selling the old house and use the proceeds of the sale as margin for the Home Loan for the new home. Consult your chartered account for the amount you need to invest to avoid paying capital gains tax. It would entail paying a significant portion as the margin. It will reduce your borrowing accordingly.
c. You have to pay stamp duty on the purchase of the new house. The amount of stamp duty varies from state to state in India. Banks do not finance the stamp duty portion. You have to arrange for the same from your savings.
d. You have to pay the processing fees, legal charges, valuation charges, and other charges to the bank while they process your Home Loan application.
e. You have to pay the stamp duty and registration when you create the equitable mortgage in favour of the bank.
These charges can be substantial. Hence, you could feel better off repairing the old house and continue residing there instead of purchasing your new home.
Income Tax Benefits on Your Home Loan
You get benefits in income tax by way of concessions under Sec 24 and Sec 80C of the Income Tax Act 1961. You can claim a rebate of up to 2,00,000 and 1,50,000 on repayment of interest and instalment respectively under the sections mentioned above. If this is your first Home Loan, it is incredibly beneficial. It should influence your decision to purchase a new house instead of residing in your old home. We have seen that your decision depends on various circumstances. Weigh all these points in your mind and make your decision accordingly.
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