Primary home mortgage loan

The outlook of people towards home purchase has undergone a drastic change. There was a time not so long ago; homes were looked at merely a place to reside in. Few ever thought of acquiring a second home as the rentals were low, and maintenance costs were high. Moreover, getting a right tenant was a matter of luck. But recent spikes in real estate prices have jolted people out of their senses. Such reasoning no longer holds good. Especially since the interest rates have dropped down drastically, now the rentals look far more attractive than what they used to look, merely a decade ago. There are many reasons to buy a home now.

The first home need not essentially be the primary home. An individual may choose to buy a home in his or her hometown, which may be in a different city from the individuals workplace. In such cases, the individual will be residing at a different place from where he or she is buying a home. This is, however, an exceptional case. Normally, people buy their first homes in the city or town where they work. This home is deemed as the primary home of the individual.

The reason for differentiating between primary and secondary homes is the simple fact that interest rates on second homes are a couple of points higher.

Unlike primary homes, which are considered as a necessity, second homes are essentially for investment purposes or rental purposes. Therefore, they are not necessities but comforts or luxuries. Because the government is responsible for ensuring a roof over everybodys head, governments policies are such that interest rates on housing loans are much lower than the prevailing market interest rates. This can lead to those people who can afford buying multiple houses at lower interest rates, and the benefits being denied to the really needy.

To counter such injustice, the government has increased the interest on housing loan being availed to buy a house other than the one in which an individual is residing or intends to reside.

Such rules, however, cannot be strictly adhered to, as the person may have resided at a flat for a few years, but is transferred elsewhere. Therefore, he or she may not be able to continue residing in the primary home. Increasing interest rates in such cases is neither feasible nor justifiable.

Such loopholes make it easier for people to take another loan on primary house for purchasing the second home.

Why is home acquisition a right financial move

Purchasing home has many advantages. These are:

The buyer gets into habit of regularly setting aside smaller amount, which, if the home loan liability did not exist, could have been frivolously spent away by the buyer.
The buyer saves on rent every month.
The installments on loan remain stagnant. However, the rentals increase every year. Effectively, the rental increases keep the ratio of rent to income a constant. Unlike this, the ratio of loan installment to the income continues to diminish because installments remain constant.
There is no need for the buyer to save the entire cost of the house, as was done in the olden days. These days, the homebuyer can get as much as 90 percent of the home price as the loan.
The buyer repays the loans in equated installments over a long period. If the payments are discounted at the inflation rate, the net amount paid by the buyer toward purchase of the home becomes very low. In fact, the buyer would not have paid much interest on the home loan.
Because of the long tenure available for repaying the home loan, the buyer can consider purchasing a bigger or better accommodation. This is because the buyer expects some income increases during the tenure, and the installments are affordable even at the present income levels.
There are tax benefits associated with home loans. The interest paid on home loans is deductible entirely for each year. This interest is however deducted from income on annualized basis. Apart from interest exemption, part of the principal repaid on home loans is also deductible from income for tax purposes. These features make home loans even more attractive.
The value of home appreciates annually unlike other assets such as vehicles, which depreciate in value over a period. This is because real estate forms an integral part of the home. Despite such appreciation, the individual does not pay any taxes on annual basis. The individual becomes liable for tax called capital gains tax only at the time of the property sale. Even here, the amounts can be rolled over safely into another home. Therefore, there are few tax liabilities emerging from purchase of a primary home.
The primary home can be re-mortgaged and the loan obtained from such re-mortgage can be utilized for purchasing another home, or other assets.
Because there is a saving on rentals, the homebuyer soon improves his or her financial position, which enables him or her to buy another house or apartment.
Personal expenses also come down because of another reason. Once a person has own home, the person is able to plan the furnishings and furniture suiting the home. This means, the purchases are done with much deliberation. If, however, an individual chose to remain in rental accommodations, the purchases would be done suiting the rental accommodation. When and if the individual has to vacate the premises, the furniture and furnishing could prove to be a mismatch for the next rental accommodation, forcing the individual to spend on new set of furnishings.

The expenditure on transporting things to another accommodation when the existing landlord decides he needs the house is also substantial.

Primary home mortgage loan

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