Tax Saving in Home Loans – What are the Options?

Overview

Buying a home is often one of the biggest purchases one can make. For many people, this is an option through qualifying for home loans.

Home loans provide convenient ways to pay off a home over a number of years (usually 20 to 30 years.) Depending on the deposit and personalised interest rate of the applicant, home loans can provide a convenient way to pay for property.

What you need to know about home loans:

The first thing you need to know is that you may not be prepared to buy a home if you have insufficient savings or poor credit history. Buying property also allows you to build wealth.

You may also be able to use this asset for taking out cash loans.

The most important thing is to know where you stand financially and what home loan options are available to you.

What are your options for tax saving in home loans?

Individuals may be able to claim deductions in their income tax against principal and interest payments that they make towards repayment of their home loans.

In South Africa, a home loan, if you have one, is the cheapest, most flexible way of borrowing money. Home Loans attract lower interest rates.  In addition, any surplus funds deposited into a home loan will perform better than most deposits in a savings account. You may avoid paying income tax on the interest.

Another form of tax saving in home loans can be made in the form of interest-only mortgages. Interest-only mortgages require that the borrower repays only the interest charged each period, rather than making repayments towards the principal and interest. This option is usually only available for terms of up to 5 years.

The interest paid on various mortgages can be deducted if consumers opt to itemise deductions on their income tax return.

It’s important to note however, that not all interest paid towards a mortgage is tax deductible.