Tips on How to Make a Profit with Your Home Loan
If you’re an owner of a home, chances are, housing expenses might be a taking a bigger pie from your disposable income. Property and gold rank right up on the list of assets to own. However, while gold can be bought as a commodity, a property is a massive investment and for most salaried individuals, it means availing a home loan. Usually, you take the decision to opt for a home loan as it has the benefits of claiming tax returns as well as due to the appreciating aspect of the property.
While taking advantage of tax benefits is true, the second reason could be debatable. An asset is expected to bring cash flow to its owner; however, this can be true only when the property is generating some money. If the house is still under construction, you still must bear the home loan in its entirety.
That said, a home appreciates in value; a home purchased 5 years ago could appreciate twice its initial investment. However, it must be noted how much of that amount has been spent in paying the interest amount in your EMI. Banks recover the interest payable during the early years of your loan tenure and this could take up nearly the increase in the asset’s value.
But what if you’re able to recover the cost of the loan and earn some profit from your home loan. This might seem like a distant dream. However, this is possible with some creativity where you can earn passive income that covers the loan and have some money left over.
Here are some ways how you can make a profit with your home loan.
Rent Out:Of course, this is an obvious approach whereby you earn rent and then use it to pay off your EMI, probably even earn more than your EMI. You can rent your home and live in a house with much lower rent than the EMI or the rent you’re generating from your home. However, you should be aware that the tax benefits are much lower in this case compared to a self-occupied home. As per the Income Tax Act, if the rent is more than your EMI, the extra income attracts income tax. So, you need to find a balance to take the maximum advantage.
Joint Home Loan: You can avail a joint home loan along with your spouse or friends as far as they are co-owner of the property. You can avail further tax benefit if the co-applicant is a female as they enjoy an extra tax exemption under the Income Tax Act. Compared to an individual home loan, a joint home loan along with a female co-applicant can reduce the outflow of cash which could be invested elsewhere.
List Your Home on Rental Websites: Several innovative sites offer to rent out your home to customers and thereby earn more cash. Also, you could rent an empty bedroom to a traveller who chooses these sites for a budget-travel experience.
Longer Tenure Home Loans: Several banks offer longer tenure to pay off your home loan. This will reduce your monthly EMI cost. Some of the banks allow tenure of up to 30 years – especially if you’re young. This will bring down the overall cost of your home loan, thereby saving some money.
Invest in SIP: By following one or more of the above, you earn extra money from a home loan. Invest that amount in mutual funds. A Systematic Investment Plan (SIP) usually starts with an investment of Rs.500. This could be a gateway to earn more than by paying EMIs on your home loan. Be that extra money you earn from renting out your property or a longer loan tenure, you can invest this amount in mutual funds and make a profit.
Close Existing Loan EMIs: Before availing a home loan for your property, ensure to close all the existing loan EMIs, especially non-collateral loans which attract higher interest, like a credit card balance, compared to a home loan. By consolidating your overall debt with just the home loan, you could stop that extra funds flowing to other higher interest loans.
Since you’ve made a massive investment by purchasing a home, it’s advisable to utilise it to its maximum to earn more money. Consider using one or more of these ways to earn regular income. While these options might be long-term investments, they sure do earn that extra money. So, take a calculated decision before you choose a home loan and how it can be profitable for you.