If you are a first-time investor, chances are you may be worried about where to invest your hard-earned money so that it grows and gives you returns as well. If you have a choice between investing in a home loan and parking your money safely in a savings account, which one would you consider, or would you go for both in order to diversify? Read on to take an informed decision as this article discusses the pros and cons of both.
Advantages and Disadvantages of Home Loan
Opting for a home loan to buy your dream property has the following benefits:
- Asset creation – You create your own asset for life by buying a home.
- Future return – Investing in a home loan increases your chance to get good returns in future as the asset value will appreciate over time and offer good returns to you on the money you invested.
- Income generation – Your home can generate income for you in future. You may put it to rent or sale and house in future. You can either put the money in a fixed deposit or invest it elsewhere.
- Home loan types – You can choose between a traditional term loan and a flexible loan. The former requires you to pay a fixed amount each month for the entire duration of your home loan. The latter provides you with the option of reducing your interest when you want.
- Conventional and Islamic home financing – Again, you can choose the type according to your preference. Through a conventional home loan, the bank earns interest from you (the borrower). On the other hand, Islamic home financing is mostly based on the Murabahah concept (cost plus profit).
According to the Malaysian Institute of Estate Agents (MIEA), there is a positive growth rate in the property sector currently. Perhaps, you can think of investing in affordable housing now.
Meanwhile, in order to form an opinion, it is imperative to know the cons as well:
- A huge chunk of your money goes into your monthly instalments. In case of an emergency, you must have a separate cash flow arrangement/emergency fund as you cannot touch your home loan amount.
- Often, buyers with ready cash gets the precedence while negotiating over those who are opting for home financing.
Advantages and Disadvantages of Savings Account
The following are the advantages:
- You can have access to your money in times of medical emergency.
- As long as you have this account, it is easy for anyone to deposit money into your account.
- You can access your account always and you can cash out almost anywhere. This makes your life much easier.
- It is safe to park your money in this account as it is Perbadanan Insurans Deposit Malaysia (PIDM) protected.
The following are the disadvantages:
- You cannot think of it as a viable investment option as the return is low.
- Some banks charge annual fees which are sometimes higher than the amount of interest that you earn on your account.
- Not all savings account will give you debit card facility. This means that you can only transfer money to and from the account either by visiting the bank or through online banking.
The idea to buy a home is wonderful but the affordability factor depends on one individual to the other. Hence, it is better to weigh the pros and cons before taking the leap. Analyse your financial position and then opt for it as it is a lifetime investment decision.