Is it wise to buy a house or live on rent? This is an eternal question. Shifting from renting a house to a homeowner, is a tough decision. It can be a massive emotional burden and a drain on your finances. But, is this the right decision? Should you buy a new residential apartment? Is it a better idea to rent an apartment?
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Buying a house could mean availing a home loan. This forces you to think on renting a house vs EMI's on the home loan. Then, appreciation in the market value of the property.
There are tax benefits on a home loan. You get a tax benefit under Section 80C, up to Rs 1.5 Lakhs a year, on the EMI (Principal) repayments of the home loan.
You enjoy a tax deduction up to Rs 2 Lakhs a year, on EMI (Interest) repayments on the home loan under Section 24. First-time home buyers get an additional Rs 50,000 deduction on EMI (Interest) under Section 80EE.
Let's understand the Rent vs Buy through a simple example. Suraj is 32 years old and works for a Financial Services Firm. Suraj will soon be married and plans to buy a residential apartment in Bengaluru. Should Suraj buy an apartment or stay on rent?
1. Suraj could stay in a 2 BHK apartment, paying a monthly rent of Rs 22,000. Rent increases at the rate of 6% a year.
2. Instead of staying on rent, Suraj could buy a 2 BHK residential apartment costing Rs 50 Lakhs, in a decent location in Bengaluru. He can make a down-payment of Rs 10 Lakhs and avail a home loan for the rest of the amount. Calculate Home Loan EMIs using the Home Loan EMI Calculator.
3. The bank charges interest of 10% on the home loan of a 20-year tenure. EMIs are Rs 38,601. Suraj earns a salary of Rs 7.5 Lakhs a year.
SEE ALSO: How EMI Calculator Works?
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If Suraj plans to stay in Bengaluru for less than 10 years, it would be wise to rent an apartment. If Suraj wants to stay in Bengaluru for more than 10 years, buying an apartment would be a better idea.
Take a look at this table:
You will notice that after the 10th year, the rent Suraj pays is more than the yearly home loan EMIs. So, buying an apartment would be a good idea, if Suraj decides to stay in Bengaluru for 10 years or more. Be Wise, Get Rich.
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