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“Your own house is always your own”. You must have heard this often from friends and relatives. There is nothing wrong in having your own home. But this was true in those times when people used to save money and  buy a house. Now, most people buy houses through long-term loans. Regardless of what anyone says, we have to pay the EMI. Whether to buy a house or live on rent, this question is similar to the one on getting married ‘regret if you marry, regret if you don’t.’ To simplify matters, we will tell you the benefits and drawbacks of both, so that the complete picture is clear.

Home loan rates

Home loan interest is directly linked to the repo rate set by the Reserve Bank of India. The cost of debt increases as repo rate rises. The Reserve Bank of India (RBI) has increased the repo rate by 2.5% since May 202.

As a result, home loan interest rate, which was around 6.5% has now increased to more than9%.

However, in its monetary policy of April 2023, the RBI  kept the repo rate unchanged at 6.5%. This suggests that there may not be any further increase in interest rates.

EMI vs Investment

Let’s assume a person Rajesh takes a loan of 40 lakh rupees for a property worth Rs 50 lakh, at an interest rate of 9.15% for 20 years… His monthly EMI will be Rs 36,376. The total payment to the bank in these 20 years would be Rs 87.30 lakh at the present rate. This includes 40 lakh rupees principal amount along with 47 lakh rupees interest. That means this house will cost nearly Rs 1 crore after 20 years.

The annual growth rate of the real estate sector is 5-6%. So, the house that is worth 50 lakh rupees today will be worth Rs 1.3 to 1.6 crore after 20 years.

Another person Suresh pays a rent of Rs 20,000 for a property worth Rs 50 lakh, similar to what Rajesh has bought. Had Rajesh also taken the flat on rent he would have saved over Rs 16,000 per month.

Investing the same amount through SIP in mutual funds will yield an estimated return of 12%. That would accumulate a total of Rs 1,58 crore after 20 years.

Investing a down payment of Rs 10 lakh  will yield a total of Rs 96.46 lakh. This would mean Rajesh will have over Rs 2 crore after 20 years.

With this amount he can buy a bigger house. A rider here is that mutual fund returns vary according to market conditions.

Buy vs Rent

On what basis should a person decide whether to buy a house or live on rent ?

In the current high-rate cycle, is it a good decision to buy a house or buy it on rent?

Now, let’s see what are the pros and cons of buying a house and renting it

Pros &  Cons

Staying on rent is cheaper than making EMI payments. There is no hassle of down payment. You can easily change your house. Meanwhile, by paying EMI, you are building an asset ie, the property. Under section 80C of the Income-Tax Act, you can get a deduction of up to Rs 1.5 lakh on principal repayment of home loan. You can also get a deduction of up to Rs 2 lakh on interest payment under section 24. You will also get rid of hassle of shifting and dealing with the landlord.

On the other hand, forget about the money you are paying as rent.  Because, that money will neither come back nor give you any return. Rent increases by 8 to 10 percent every year. Without the landlord’s permission, you cannot change the layout of the house.

However, to buy a house, you will have to bear the burden of expenses such as down payment, stamp duty, and registration charges, apart from the EMI. If you need money, you won’t be able to sell the house immediately…

Things to keep in mind

If you are buying your first home, then, you should  keep a few things in mind.
First, how secure is your job? This will determine how prepared you are for the long-term commitment of making EMI payments

Pay as much down payment as possible so that you have to pay lower amount of interest.

Is the house available in your preferred location within your budget.
Interest rates vary according to the repo rate. So, if interest rates are high today, they can also come down in future.