Home Loan vs Rent: Rental markets are constantly getting expensive in big cities of the country. The annual fare hike in many areas has reached 8-10%. In such an environment, the question has become more important than ever before that it is beneficial to stay on rent for a long time or buy a house. Let us see 20 years of financial analysis on the basis of a house worth Rs 1 crore and understand from experts which option will be beneficial for you.
Buying a house of ₹ 1 crore
If you buy a house of Rs 1 crore, then you have to make a down payment of about 20% i.e. ₹ 20 lakh. You will take a home loan of the remaining ₹ 80 lakh. If we consider the average interest rate of home loan 8.5%, then your monthly EMI will be around ₹ 69,426 on a period of 20 years.
In the entire 20 years, you will pay around ₹ 86.6 lakh interest. This means that the total cost of the house is ₹ 20 lakh (Down Payment) + ₹ 86.6 lakh (interest) + ₹ 80 lakh (loan principal) = ₹ 1.86 crore.
Now if we consider 6% annual property growth, then after 20 years this house will be around ₹ 3.21 crore. That is, you will be the owner of a house worth ₹ 3.21 crore after 20 years after spending ₹ 1.86 crore. You will have a permanent property.
If you live on rent?
Now let’s assume that you rented the same house. If its initial fare is ₹ 40,000 a month, then with a 10% increase every year, this fare will reach ₹ 2.67 lakh per month after 20 years. In the entire 20 years, you will have to pay the rent of about ₹ 2.75 crore in total.
However, you can get an advantage by investing an EMI (₹ 69,000) and a difference of fare (₹ 40,000) in the initial years. If you assume that this difference is invested with 10% annual return, then after 20 years you will have a portfolio of about ₹ 64 lakh. But as the fare increases, the investment scope decreases.
Direct comparison after 20 years
| Factor | House | Hire |
| Total expenditure | ₹ 1.86 crore (Down Payment + Original Loan + Interest) |
₹ 2.75 crore fare |
| Net asset value | ₹ 3.21 crore house | ₹ 64 Lakh Investment |
| Liquidity | Less | More |
| Advantage | Safety of owner |
Location change facility |
That is, after 20 years, the person buying the house will be the owner of the property of more than ₹ 3 crore, while the rent will have the freedom to change better liquidity and location, but the expenses will be more and less will be very low.
What is the opinion of experts
Atul Monga, CEO and co-founder of Basic Home Loan, says that home is considered easy and flexible option, especially for the youth who often change the city due to jobs or studies. It has no longer responsibility and gets the facility to live immediately. But in a long time it is not beneficial, because the fare paid every month is spent, but it does not make any property of you.
According to Monga, if you buy a house, it becomes your own property. This gives you the benefit of safety, tax exemption and rising property prices. This is why property is considered the best investment for a long time.
He says that nowadays home loans are easily and quickly found, due to which it has become possible for those who buy the house for the first time. In many cities, it has been seen that EMIs given for home are often as much or less as they have to pay. In such a situation, buying a house is a more intelligent decision for a long time.
Who will be in profit after 20 years
If the fare is increasing at a rate of 10% every year, then buying a house in a long time proves to be financially more beneficial. After 20 years, you will have a precious asset, while your expenses will increase much more and you will have a relatively small investment.
However, this decision depends not only on the data but also on the stability of your job, the desire to settle in the city and lifestyle.
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