Besides the obvious answer that goes " because I cannot afford to buy a shelter over my head outright", there are several other reasons why a Home Loan makes sense from a long term Savings perspective.

Your grandfather may have told you " Son, dont take any loans, they are only trouble" but this is no longer true in the New World. You may have also heard the saying that "Wealth begets Wealth". However, great many of us cannot put up that initial capital to kick-start the wealth creation process.

Assume that you have identified a Gemstone that can be bought for about Rs. 2 lacs today but would be worth Rs. 31 lacs in 15 years (a compounded return of 20% over the 15 year period). You would have grabbed the offer but for the fact that you have a bank balance of just Rs. 50,000. A friend comes along and offers to loan you Rs. 1.5 lacs but at an interest of 10%. You will immediately buy the Gemstone as you calculate that the return from the investment in the Gemstone is far higher than the interest cost that you have to pay your friend. 

We put the same principle to work for you while taking a housing loan. Just substitute "Home" instead of "Gemstone" and " Housing Finance Company" in place of "Friend " in the previous example and you will see why. The long term average return in investing in a home is about 20% p.a. while the average cost of borrowing funds in the market today is about 10% p.a. (after considering all tax breaks). As long as the cost of financing the home is less than about 20% it makes sense to borrow and buy. There is one key difference howeveryou can Live in the Home as well ! 
 

* No part of this article maybe reprinted or used commercially without the written consent of the author