Self-employed individuals who run healthy businesses usually have sufficient balances to cover the cost of buying a new home, especially if the property under construction and the payments are spread out over a period of time and not due in one shot. Because of having sufficient cash flows, and because of the Indian tendency to avoid taking on debt unless absolutely necessary, self-employed individuals are normally averse to taking a home loan. But taking a home loan makes a lot of sense even if you have sufficient cash flows from your business, here’s why.
1. Lower cost of funds
Home loans are extremely cheap relative to business loans. While the home loan rate today is around 7%, business loans are available at rates upwards of 12-20%. It definitely makes sense to opt for funds that are available at a lower rate! Even if you don’t have any business loans, consider the opportunity cost of self-funding your home purchase. You would be better off reinvesting those funds into your business because your business would definitely (hopefully!) have a higher ROI than the home loan rate.
Pro Tip : Did you know that even if you’ve already paid for your home, you can get your funds refinanced within a certain period by opting for a home loan?
2. Lower cost of purchase
If you’re buying an under-construction property, opting for a home loan with parallel funding can potentially reduce your initial outflow significantly.
Leading banks offer schemes like 5 – 70 -15 – 5, which basically means you pay only 5% to book and register the flat, the bank pays the next 70%, after which you pay the remaining own contribution of 15% and then the bank releases the final 5%.
If you’re not opting for a home loan, you would need to pay a minimum 10% to be able to register your apartment. So opting for a home loan with parallel funding can reduce your initial cash outflow to a huge extent.
3. Flexibility and Overdraft options
Banks now offer innovative home loan options like home loans with an overdraft facility. Whatever funds you park in the OD account linked to the home loan will not incur interest. This gives you a lot of flexibility. You can even avail the entire home loan amount and park it in the OD, which means you won’t be incurring any interest cost but you have an OD line ready for whenever you need it or in case of emergencies.
This option is particularly great if you have a seasonal business where you can park cash in the OD account when you have excess funds.
Also as per RBI rules, banks cannot charge any prepayment or preclosure penalties on home loans, so you can choose to close your home loan whenever you wish to at no additional cost.
We think it makes a lot of sense for self-employed individuals to opt for a home loan even if they have sufficient cash flows for all the reasons listed above.
We have tied up with leading banks to offer superb home loan schemes to our self-employed customers. For instance at Monte South, a luxury residential project at Byculla, we offer a parallel funding scheme where you can book your flat with a downpayment of just 5%
Get in touch to learn more or in case you required assistance with your home loan.
Marathon Group is a 52 year old real estate builder that has completed over 80 projects in the city. The Group has a wide portfolio of projects across affordable housing, luxury housing, townships, commercial spaces and retail spaces and has a presence in Mulund, Bhandup, Panvel, Dombivli, Kalyan-Shil, Byculla and Lower Parel.
To learn more about Marathon’s projects visit marathon.in