Rent and house purchase calculator: Mortgage rates are expected to rise as the Reserve Bank of India (RBI) recently raised the key repo rate. With this, the debate between renting and buying a home is back in fashion. Several new financial influencers argued that renting would be better than owning a home right now. Is their claim true?
However, there are also traditional proponents of buying a home who say that owning a home is always better than renting under any circumstances. In this article, we examine how true the arguments are using an example and Fi Neobank’s Rent vs Buy calculator.
Example: Suppose you can rent a house for Rs 20,000/month in Noida. You also have the option of buying an apartment worth Rs 50 lakh in Noida by paying a 20% deposit and getting the remaining amount as a home loan from a bank at 7% interest for 28 years old. Let’s see if you will profit from renting or buying, assuming that the rent increases by 5% per year, that the mortgage rate remains constant at 7% and that you invest the rental savings moderately while remaining neutral on rising house prices:
- The calculator shows that the EMI home loan would be Rs 27,184. If you rent a house and invest your extra savings, your net worth after 28 years would be Rs 1.40 crore (assuming a 9% return on investment).
- In contrast, if you buy a house with the down payment now and then 28 years from now, your net worth would be Rs 2.01 crore (assuming a house price appreciation of 1.6%).
So, the calculator shows that you can make a profit of Rs 60 lakh by buying a house and paying EMI instead of renting.
Here, it is important to note a few points regarding home loans:
- Depending on age, you can get a home loan for up to 30 years. The calculator shows that a 30-year loan in the above case would yield an advantage of Rs 86 lakh over renting!
- You can close a home loan at any time, or you can gradually reduce the principal of the home loan by depositing a lump sum to close the loan sooner.
- Paying interest on home loans up to Rs 2 lakh/year also qualifies for tax benefit.
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It is important to remember that buying a home is a very important decision in life. It becomes easy to buy a house if you already have a lump sum to make the down payment. With housing prices rising even in small towns, it may be wiser to buy a home as soon as possible instead of falling into the rent trap forever.