Rent Vs Buy – How to Decide in Simple Steps
Every individual has their own financial goals. However, one of the most common goals that the majority of Indians have is buying a new home. If you are looking to buy a home, you may feel confused whether to buy a new space or rent a home.
Given the volatile nature of the India real estate market, buying a home may not be financially feasible for all. Some people find buying a home unaffordable even after taking a loan. In such a situation, most people believe renting is the best and cost-effective option.
However, is renting really the right choice? Let us look at some of the important facts to decide if buying a home is better than renting or vice-versa.
Let us assume, you rent a 1BHK flat in Pune and pay Rs. 20,000 as rent every month. The landlord increases the rent after every financial year by 5%. Now consider another situation. You want to home loan apply and borrow Rs. 40 lakhs for 20 years to purchase the same flat. Based on your credit profile, the lender levies a 9% interest on the borrowed amount.
Now, in the above situation, if you stay in the rented home for 40 years, after a few years, the rent you pay every month may increase up to Rs. 80,000. And, at the end of 40 years, you may have paid about Rs. 2.9 crores and yet don’t get the property ownership.
On the other hand, if you purchase a home, the EMI you pay would be about Rs. 36,000 and it would remain the same for 20 years. And, at the end of loan tenure, once you have paid all the EMIs, you must have paid about Rs. 87 lakhs and you get full ownership of the property. You can live in the same house for the next 20-30 years and pass on the ownership to your children and secure their future.
From the above example, it is evident that when you rent a home, you may save money initially, but in the long run, buying a home is a better option. You can save about Rs. 2 crores. If you are still not convinced if buying a home is better than renting, here are a few other advantages of buying a home.
- When you buy a home, the sense of pride and security you feel is indisputable
- You need not have to worry about increasing monthly rent
- Since the EMI amount remains fixed, you an easily manage the payments
- You need not have to worry about the landlord’s interference in they way you want to keep your home
- You can rent out your property to get additional income
- The EMI payments help you remain financially disciplined
- Every year, you can enjoy tax benefits on the interest and principal repayment under different sections of the IT Act and reduce your annual tax liability
Renting a home vs buying – how to make the right choice?
If you are young, it is advisable that you apply for a home loan at the start of your career and buy a home. This will give you ample time to repay the loan and manage the EMI payments efficiently as your income increases over the years. Additionally, the value of the property may increase manifold, and if you decide to sell, you may get valuable returns.
However, if you don’t have a fixed income source, and are not sure of your employment prospects in the future, renting a house would be a better choice.
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