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Home Loan: Good Debt or Bad Debt?

Aman Khanna

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Many might be stuck with the query – whether a Home Loan is a good debt or a bad debt? The answer for this can be quite logical. Many investment advisors suggest that a loan used to purchase an asset is always a good one. The loans borrowed in order to buy depreciating assets or for optional expenses are considered as bad debts.

Talking about housing property, it is a debatable thing whether you should count house as an asset or not. At times, you might disagree to sell your house even if the property is earning a higher amount. Whereas, in some cases, people sell their housing property to monetize their financial emergency. When the house is sold during a fiscal crisis, it is obvious the amount won’t be appreciable. In such a situation, conserving Home Loan as a good debt will not be wrong.

The house can be considered as an investment. There are times when people purchase housing property just for the investment. In such a situation, a Home Loan cannot be considered as a bad debt because it is more or less going to contribute you to earn higher returns. The returns you earn after selling non-occupied property will be definitely more than that of your invested amount.

Besides a property investment, a loan borrowed to purchase a self-occupied property is also not considered as a bad debt. However, the house that you are currently residing in can be sold for a higher cost in case if you are planning to buy a second home in future. At times, there are situations wherein builders can approach you and buy your housing property for a high price.

If such is the situation, the question is – what should you consider as a bad debt?

In case if you want to buy a car or a cell phone or want to fly overseas for a vacation, then investing your money here can be called as a bad debt. Sometimes, people borrow loan in order to purchase certain goods or services which might not be a necessary thing. These borrowed loans can be considered as a bad debt.

Suppose, if you are planning to borrow a Top-up Loan over your Home Loan, to plan a vacation. The top-up loan that you take in such a situation can be a bad debt. The equation of good and bad debt is a pretty simple one – a loan borrowed to purchase an asset that can benefit you in future is a good debt.

Apart from this, your credit card purchase, personal loan, etc. can also be considered as a bad debt. If you own such loans, then it is essential that you try to clear them. One such way to get rid of these bad debts can be surplus income. You can allocate your surplus income to repay these debts. Also, at the first place, it is important to avoid falling into such debt situation. You must try to increase your assets over liabilities, as this can reduce your financial stress as well as help you with the financial planning.

Coming to the Home Loans , you cannot avoid borrowing a housing loan as it acts as a helping hand during a property investment. As Home Loans can be one of the huge financial needs, managing it properly can help you reduce your fiscal stress as well; which thus, brings us to a conclusion that Home Loans are a good debt.


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