In today world where land and making house is so much costly, the aim of most of the people is to have their house. So the purchase a house has the two options, either use your own funds to buy a house or borrow money from different sources to purchase a property. The two options are available but one can’t say which one is good. If the loan is available at good rates, one have the option to borrow where if the own funds aren’t sufficient, one also need to look for borrowing money. Borrowing money has the three main factors which effect on the long term to your pocket which are as follows.
The loan amount
Rate of interest you need to pay on loan
Loan tenure on which you will pay the entire loan with interest.
With above three factors, the financial institutions where the loan is taken, makes the EMI (equal monthly installments). The rate of interest is the main factor in these three and any changes in the rate of interest will change either the EMI amount or the tenure of the loan. For example if there is a loan in 2007 at 8%, and it jumps to 12-13% in 2011-12, the loan tenure will increase 5-6 years with the same EMI or the EMI will be increased to 20-22%.
Using own funds is also an option to buy this house. In this option one need to calculate the return on income. It means that what he will earn with this capital if he doesn’t use his own funds to buy a house. Suppose one has the return on income at 20% annually and he has the option to get the loan at 13%. He should take the loan instead of using own funds. If the return on income is less than the interest rate, one should use his own funds to buy a house.
So this decision making is hard as needs a lot of calculation with income and income tax point of view. So there is a calculator loan vs. own funds calculator which can be very handy to calculate the things for you.
Download calculator from here
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