Home Loan or House on Rent – Which is a better option?

A lot of people in India often feel confused about whether they should buy a new home or rent one. If you too are in a similar dilemma, read one to know which is the better option.

When it comes to searching for a new home vs renting option, it will always be a never-ending debate. People who live in a rented space will invariably favour renting and recommend you the same. Because they feel the cost of living on rent is much less than that of buying a new home.

In India, over the years, the rent for real estate properties have increased significantly. And, the experts suggest that the rent is expected to increase further in the future. Keeping aside the statistics, let’s understand, which is the better option.

Owning vs Renting

 Let’s assume that you have rented a 2BHK house in Mumbai and you pay Rs. 20,000 as rent every month. Generally, the home owners increase the monthly rent every year by 5%. On the other hand, if you have purchased a 2BHK in the same location and have availed a home loan of 40 lakhs at 8.25%. for 20 years.

If you live in your rented home for 40 years, the monthly rent may reach up to 80,000 (with 5% increase in the rent). And if you calculate the total amount you would pay for 40 years, it would be a round 2.9 crores. Also, you do not have the ownership of the property.

But, if you have availed a housing loan, the EMI would remain constant for the entire tenure and at the end of the 20 years you would have paid around 82 lakhs. But, you would get complete ownership of the property.

Other Benefits of Home Ownership

Apart from being financially more viable, owning a home has other benefits including:

• You get a sense of security and pride in owning a home
• You need not worry about the increasing rent every month
• The EMI is easy to manage as the amount remains fixed throughout the loan period
• You need not worry about dealing the landlord. You can do anything you want in your house.
• If you are not occupying the home, you can let it out on rent and earn additional income from it
• Paying the monthly EMI helps you to be disciplined with your finances.
• You can avail tax deduction on housing loan
• The value of the property increases over time

Benefits of Renting a Home

While there are many obvious benefits of purchasing a home, you can also consider renting a home if-

• You are job requires you frequently move to a new city
• You have no stable income source and cannot afford paying the EMIs
• You have no savings and cannot make arrangement for paying the down-payment amount
• You do not commit yourself to the long-term financial obligation of a home loan
• You do not want to stay in the same house for several years

Rent a home or avail a home loan – The final word

So, what should you select? Most experts agree that youngsters should consider purchasing a home in the earlier years of their careers. This will ensure that they can complete the loan repayment sooner in life. While it can be challenging to manage the monthly EMIs in the initial years, the EMI amount will be the same even after 5-10 years while your income will continue increasing.

Moreover, within the duration, the value of the property can also increase significantly. However, if you are just starting your career and are not too sure about the employment prospects or might have to move to another city/country in the future, renting can be a smart option.