What Is Better – Paying Loan EMIs For Your Own Home Vs Renting A House?
IT Worth Desk | Apr 18, 2024, 13:51 IST
Highlight of the story: Today, we'll tackle the dilemma: pay rent or pay EMI. For many young earners, deciding between renting and buying a home with a home loan can be perplexing. On one side, there's the allure of homeownership, while on the other, renting offers flexibility without the weight of hefty EMIs. Unfortunately, there's no one-size-fits-all solution. However, by crunching some basic numbers, we can guide you to make the choice that aligns best with your lifestyle and financial capacity.
Today, we'll tackle the dilemma: pay rent or payEMI. For many young earners, deciding between renting and buying a home with a home loan can be perplexing. On one side, there's the allure of homeownership, while on the other, renting offers flexibility without the weight of hefty EMIs. Unfortunately, there's no one-size-fits-all solution. However, by crunching some basic numbers, we can guide you to make the choice that aligns best with your lifestyle and financial capacity.
Deciding between renting and buying a home involves a complex financial analysis. Let's break down the numbers to help you make an informed decision.
Monthly rent: Rs 25,000Annual rent in the first year: Rs 3 lakhRental yield: 3%Cost of rented property: Rs 1 croreAssumed annual rental increase: 10% p.a.Total rent paid over 15 years: Rs 89.8 lakh
Cost of purchased property: Rs 1 croreLoan-to-Value (LTV) ratio: 75%Downpayment required: Rs 25 lakhHome Loan Amount: Rs 75 lakhAssumed annual capital appreciation: 5% p.a.Assumed Home Loan interest rate: 7% p.a.Stamp duty charges: 6% of the property amountProperty registration charges: 1% of the property amountHome Loan tenure: 15 yearsTotal home loan cost: Rs 1.21 croreExpected EMI: Rs 67,412
Additionally, considering investing the down payment of Rs 25 lakh in equity mutual funds for 15 years could yield a corpus of around Rs 1.36 crore at a conservative 12% p.a. return.
Property cost: Rs 60 lakhStamp duty charges: 6% of the property amountProperty registration charges: 1% of the property amountLTV ratio: 80%Downpayment required: Rs 12 lakhHome Loan Amount: Rs 48 lakhAssumed annual capital appreciation: 5% p.a.Assumed Home Loan interest rate: 7% p.a.Home Loan tenure: 15 yearsTotal home loan cost: Rs 97 lakhExpected EMI: Rs 53,930
In purely financial terms, renting may save you close to Rs 72 lakh and Rs 10 lakh respectively in Scenario 2 and the sub-scenario. However, this decision depends on various factors such as financial readiness, lifestyle, and long-term goals.
In the current scenario, low home loan interest rates, concessional stamp duty charges, and tax benefits make owning a home an attractive option. However, renting offers flexibility and lower total cost.
For short-term solutions, renting may be preferable until one is financially capable of contributing a down payment and repaying home loan EMIs. In the long run, owning a home tends to outweigh renting in terms of tax benefits, freedom, and asset ownership. However, individual circumstances and priorities ultimately determine the best choice.
Also Read: ITR 2024: Old Vs New Tax Regime, Which Is Better For You?
For the latest and more interesting financial news, keep reading Indiatimes Worth. Click here
Deciding between renting and buying a home involves a complex financial analysis. Let's break down the numbers to help you make an informed decision.
Scenario 1: Renting
Monthly rent: Rs 25,000Annual rent in the first year: Rs 3 lakhRental yield: 3%Cost of rented property: Rs 1 croreAssumed annual rental increase: 10% p.a.Total rent paid over 15 years: Rs 89.8 lakh
Scenario 2: Buying
Cost of purchased property: Rs 1 croreLoan-to-Value (LTV) ratio: 75%Downpayment required: Rs 25 lakhHome Loan Amount: Rs 75 lakhAssumed annual capital appreciation: 5% p.a.Assumed Home Loan interest rate: 7% p.a.Stamp duty charges: 6% of the property amountProperty registration charges: 1% of the property amountHome Loan tenure: 15 yearsTotal home loan cost: Rs 1.21 croreExpected EMI: Rs 67,412
Additionally, considering investing the down payment of Rs 25 lakh in equity mutual funds for 15 years could yield a corpus of around Rs 1.36 crore at a conservative 12% p.a. return.
What Is Better – Investme
Sub-scenario: Compromising on property type
Property cost: Rs 60 lakhStamp duty charges: 6% of the property amountProperty registration charges: 1% of the property amountLTV ratio: 80%Downpayment required: Rs 12 lakhHome Loan Amount: Rs 48 lakhAssumed annual capital appreciation: 5% p.a.Assumed Home Loan interest rate: 7% p.a.Home Loan tenure: 15 yearsTotal home loan cost: Rs 97 lakhExpected EMI: Rs 53,930
In purely financial terms, renting may save you close to Rs 72 lakh and Rs 10 lakh respectively in Scenario 2 and the sub-scenario. However, this decision depends on various factors such as financial readiness, lifestyle, and long-term goals.
Does It Make Sense To Buy A House Or Rent One?
In the current scenario, low home loan interest rates, concessional stamp duty charges, and tax benefits make owning a home an attractive option. However, renting offers flexibility and lower total cost.
For short-term solutions, renting may be preferable until one is financially capable of contributing a down payment and repaying home loan EMIs. In the long run, owning a home tends to outweigh renting in terms of tax benefits, freedom, and asset ownership. However, individual circumstances and priorities ultimately determine the best choice.
Also Read: ITR 2024: Old Vs New Tax Regime, Which Is Better For You?
For the latest and more interesting financial news, keep reading Indiatimes Worth. Click here