This writeup brings startling facts of actual cost of owning a property (assuming for one's own occupation) if the same is financed through Home Loan:
Case A
Loan taken Rs 20 lacs
Own Contribution Rs 5 lacs
Cost of Property Rs 25 lacs
Interest Rate 8%
Repayment Period 20 years (or 240 months)
A person who has taken home loan as per details given in Case A would end paying Rs 40,14,912 (Interest of Rs 20.15 lacs+ Principal of Rs 20 lacs) assuming interest rates neither rise nor reduce (quite unlikely as interest rates are currently at rock bottom). Thus the cost of owning property is Rs 45 lacs (ignoring municipality taxes, maintenance cost etc.) instead of the current purchase price of Rs 25 lacs.
Case B
Loan taken Rs 20 lacs
Own Contribution Rs 5 lacs
Cost of Property Rs 25 lacs
Interest Rate 8%
Repayment Period 15 years (or 180 months)
A person who has taken home loan as per details given in Case A would end paying Rs 34,40,348 (Interest of Rs 14.4 lacs+ Principal of Rs 20 lacs). Thus the cost of owning property is Rs 39 lacs instead of the current purchase price of Rs 25 lacs.
This small analysis provides insight into how much we are actually paying or ready to pay for a property over the years.
