Home Loan or House on Rent – Which Is a Better Option?

Home Loan or House on Rent – Which Is a Better Option?

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Today, several people believe that renting a home is financially feasible as compared to buying a new home. But, is renting a home better than buying? Or is it vice-versa? Read on to know the answer.

Everyone has specific financial goals in life. But, one of the most common goals that most Indians share is – home ownership. But, not many people can afford to pay the high cost, even after taking a home loan. As a matter of fact, many people are opting for a rented home. But is renting a wise decision? If you too are in a dilemma, and can’t decide whether to buy a home or rent it out, knowing the below-mentioned facts can help you make an informed decision.

Renting a home Vs Buying a new home – which is better

Let us understand this with an example.

Let us assume that you are living in a rented 2BHK flat in Mumbai and pay a rent of Rs. 20,000 per month for the same. On average, the landlords in India increase the rent by up to 5% every year. In a similar situation, assume that you have purchased a 2BHK flat in Mumbai and have taken a loan of Rs. 40 lakhs at 9% interest for 20 years.

*Some lenders offer home loans at lower interest rates starting from 7.35%.

Now, if you stay in the same home for about 40 years, the monthly rent will be approximately Rs. 80,000 per month, and at the end of 40 years, you may have paid about Rs. 2.8 crore in rent without getting the ownership of the property. When you purchase a home, you will pay about Rs. 36,000 as EMI, including the interest on housing loan throughout the loan term of 20 years.

At the end of 20 years, when you repay the loan, you may have paid about Rs. 85 lakhs and after you have fully repaid the loan, you get complete ownership of the property. Now, you can live in the same for 20 more years without worrying about incurring any monthly expense. In other words, you can save up to Rs. 2 crores by applying for a home loan and buying the home.

Benefits of buying a home

Apart from helping you save a significant amount on rent, there are many other benefits of owning a home, which are:

  • You can provide a permanent roof to your family member
  • Owning a home can give a sense of security and pride of being a homeowner
  • No hassles of constantly moving to different homes (which is an added expense) or restrictions/interference of the landlord
  • Paying the monthly loan EMI helps you be financial disciplined
  • You can take advantage of the tax benefits and reduce your overall tax liability
  • You benefit from the increase in the value of the property over the years

How is Renting a Home beneficial?

While owning a home has several benefits, renting a home can be a feasible option for you, if:

  • You are involved in a profession that requires to move to different cities from time to time
  • You do not have sufficient funds to pay the down payment
  • You have long-term plans to settle abroad and do not want to invest in a property in India
  • You are not financially ready for the long-term commitment of repaying the home loan
  • You have not a stable source of income to pay the loan EMIs

Making the crucial decision

So, now that you are aware of the benefits of both buying and renting a home, what do you choose? Most experts suggest youngsters should consider buying a home in the early years as they have a longer period to repay the loan. While you may find it hard to pay the EMI during the initial years, over the years, as your income increases, you can increase the EMI pay out.

Read more: Merchant loans

Additionally, through the course of the loan term, the value of the property will also increase significantly. But, if you are starting your career and are not sure of the income prospects in future or if you plan to move to a different city in the future, renting a home would be the smart choice.

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