If you’re in your 30s or early 40s, you might have been pondering whether it’s better to buy a home or continue to stay in a rented apartment.
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But first, it is important to understand that this is not an apple-to-apple comparison as both come with their own set of pros and cons.
Moreover, there is no definitive answer to whether buying a home by taking a home loan is better than renting or vice versa.
You will see a lot of articles on this topic that make the comparison with Excel sheets to show how one option is better than another.
But honestly, buying a home or staying in a rented house is more of an emotional decision no matter how much we try to behave like logical individuals. Buying a home or choosing to rent is often driven by emotions rather than logic, despite our attempts to be rational.
Home means different things to different people. Children of defence personnel might have to change cities every few cities. So, they might want to buy a home as soon as possible and settle down.
On the other hand, a person who lived their whole life in one city might crave to explore different cities and wouldn’t want to be tied to one city so quickly.
So, the answer depends on your age, your current income, investments, obligations, job scene and how you see the world.
Let us see some of the factors that help you figure out whether you should buy a home through a home loan or live in a rented apartment.
Benefits of Buying a Home Through Home Loan
Here are a few benefits of buying a home:
Asset Creation
The most common argument for taking a home loan is that you’re essentially acquiring an asset. While living in it, your home might not be considered a traditional asset, but if you have a spare room to rent out or if you move and decide to rent the whole property, it can generate income and thus be viewed as an asset.
Stability
Stability is another key factor. Owning a home means you don’t have to move frequently, providing a stable environment where you can plan your life, including your children’s schooling and other activities.
Rising Rent in Metro Cities
We have all heard stories or have first-hand experience of rents skyrocketing in the past few years, especially after the pandemic.
According to various sources, the residential rental values in India’s top cities have increased tremendously after the pandemic and 2023 witnessed an increase of over 30% y-o-y.
As a result, the gap between renting and paying home loan EMI has narrowed and more individuals are looking at buying a home.
Good for Retirement
If you take a home loan in your mid-30s or early 40s, you can pay off a home loan within your working years. This means that you won’t need to worry about rent expenses after you are retired.
Inheritance
A home can be passed on to future generations. Hence, if your child is settled in the same city, they don’t have the burden to buy a home. They can use their money to invest in their ventures.
Emotional Benefits
Owning a home can provide a sense of pride and security that renting cannot. Owning a home gives you the freedom to customise your home as you see fit and truly make it your home. Moreover, you don’t need to worry about your landlord telling you to vacant the flat because their child is returning from The States.
Reverse Mortgage
A Reverse Mortgage is the reverse of a loan. Here, you can borrow money against your home and the bank pays you a fixed amount every month. At the end of the loan or after the death of the last surviving spouse, the ownership of the home gets transferred to the bank.
Your children have the option to pay for the house and get the ownership of the home.
While reverse mortgage as a concept is still not very common in India, it can help retirees with additional income reducing their dependence on other sources of income or supplementing their income.
Benefits of Renting
Now, let us look at some of the benefits of living in a rented house.
Flexibility
Renting might be a good option if you prioritize flexibility. Renting can be effective if you don’t plan on staying in one city for more than seven years.
Lower Initial Costs
Renting is typically cheaper than owning a house as it requires less upfront money compared to the down payment and closing costs of buying a home.
Moreover, it is important to understand that the total interest amount payable against the loan might be higher than the principal amount.
For instance, if you have taken a ₹ 2 crore home loan at 8.75% for 20 years, you have to pay a total interest of Rs 2.24 crore which is more than the principal amount.
No Maintenance Costs
When you rent, the landlord usually handles maintenance and repair costs. While these costs might seem negligible at first, closer inspection shows that these small costs have become substantial over the years.
Conclusion
Choosing between renting and buying depends on your current financial situation, future plans, and personal preferences. Hence, it is important to consider these factors before deciding.
