Paying Home Loan EMI Vs. Renting A House: What’s Better For You?

Among the three basic necessities of life, shelter is a high-value expense. It requires methodical planning and a large reserve of funds. With real estate prices always on the upswing, purchasing a house may be beyond the reach of most individuals unless they opt for housing finance. However, the big EMIs and finances involved may be a deterrent, due to which, some individuals might prefer to stay in a rented place. There are differing viewpoints on whether it is feasible to pay house rent or bear loan EMIs. Most people believe that paying EMIs to gain home ownership is preferable to paying rent. Yet, such opinions are personal and based on one’s circumstances, financially or otherwise.

Is Buying a House Better than Renting in India?

When you buy a house on EMI, you get the privilege of asset ownership right from the very first day through the income that you will earn in the coming years. It may seem unaffordable initially, but EMIs make repayments easier in the form of smaller manageable pay-outs. This acts as a compulsion to set aside the required sum towards loan repayment. If you do not avail of a Home Loan, it might not be possible to save money with such regularity and you would find it hard to accumulate the finances for buying a house.

To take an example, let us suppose that the current price of a 2 BHK flat is Rs. 35 lakh and the monthly rent for the same is Rs. 6,000 per month. If you were to secure a housing loan for 80% of that amount i.e. 28 lakh at 8% rate of interest for 20 years, your EMI pay-outs would be Rs. 23,420 per month. Based upon loan eligibility, lender norms and the estimates of a Home Loan Eligibility Calculator, if you draw a monthly salary of Rs. 50,000 or more; you are eligible to obtain a house loan of Rs. 28 lakh.

Why Pay EMI, Why Not Invest? – EMI vs Rent

Some individuals may not think it viable to pay Rs. 17,000 additionally for EMIs when one could stay in the same flat for Rs. 6,000 per month. Instead of blocking the EMI amount every month, they may wish to invest it for higher returns through stock markets, mutual funds and so on. Yet others may think it better to spend the money on enhancing their current lifestyle as a result of a larger spending capacity.

Alternatively, it is possible that you may already have the requisite savings of Rs. 35 lakh to buy the house and you may not want to obtain a house loan. If you divert this money towards investments in stocks, mutual funds or bonds rather than investing in a home; you may earn sizeable returns of Rs. 30,000 to Rs. 50,000 per month or even more. So, one can potentially pay the rent of Rs. 6,000 and save the surplus amount of Rs. 24,000 – Rs. 40,000; or utilise it for a business venture as per preference. 

The Joy of Owning a Home

The equation of home purchase and ownership stems from experiencing the true ‘joy of owning a home’ and a place to call one’s own. Despite the financial savings that may appear lucrative and appealing when one lives on rent, most people are keen to buy a house bearing heavy EMIs due to the following reasons:

  • It provides a sense of security, satisfaction and peace of mind which is invaluable.
  • Since it is legally your house, you can live there as you please, without worrying about eviction and rent payments.
  • During times of hardships, if you lose your job or face problems in your business, your house will address your shelter needs.
  • Under extreme conditions, you may choose to mortgage your house and borrow money to fulfil your business requirements or for medical emergencies, children’s education, marriage, etc.
  • When one grows older, one may face a depletion of savings and income; consequently, owning a house takes the pressure off paying the house rent.
  • Real estate prices appreciate over the years raising the valuation of your house.

Factors That Influence Home Purchase

Purchasing a house is a monetary commitment of a lifetime, especially when one has to avail of housing finance for the very purpose. This decision, therefore, is governed by various considerations such as:

1. Employment Needs

Real estate purchases cannot be made every few years if your job requires you to move from one city to another at regular intervals. In this scenario, it is better to rent a house wherever you may work rather than buying a property. Many people go back to their hometowns once they retire after long years of service. Hence, they prefer to purchase a house in their native place instead of the place where they work.

2. Financial Condition

To own a house or rent a house – which is better? The foremost factor that influences your decision to buy or rent a house is your current financial condition. If you wish to purchase a house, calculate the costs involved. It is recommended that you use a Home Loan EMI calculator before applying for a Home Loan so that you can make an informed decision. 

Home Loan tenors normally extend up to 30 years. You may consider a housing loan if you have a stable job and income that will enable you to cover the EMI repayments comfortably. Otherwise, you could opt for a rented house. Missed or delayed payments due to a job loss, salary cuts or business crises are red flags for lenders that attract a penalty fee. In certain instances, they may even initiate legal proceedings against loan defaulters. 

To Conclude

Postponing your home buying plans for any reason – genuine or perceived – is not advisable as the cost of your property will increase with time causing a sharp rise in EMIs correspondingly. Besides, market conditions rise and fall periodically. So, if you wait for the repo rates to fall or for the real estate business to improve, both property prices and Home Loan rates may get even costlier. 

Several online tools like Home Loan vs Rent Calculators, Home Buy vs Rent Calculators and Rent vs EMI Calculators are available online that enable you to make informed decisions based on inputs such as property prices, appreciation rate, monthly rent, home loan rate and tenor, monthly salary, etc. The results will help you determine whether you should avail of a Home Loan or rent an apartment instead. 

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