Home Loan vs Rent: Looking at the rising rents and cost of home loans in big cities of India, the question arises, is it better to buy a house by taking a home loan or live on rent? Let’s know the answer from data and experts.
Home Loan vs Rent: The rental market in the country’s big cities is getting increasingly expensive. In many areas, the annual rent increase has reached 8-10%. In such an environment, the question has become more important than ever whether it is beneficial to live on rent for a long time or buy a house. Let’s do a 20-year financial analysis based on a house worth Rs 1 crore and understand from the experts which option will be beneficial for you.
Buying a house worth ₹ 1 crore
If you buy a house worth Rs 1 crore, then you will have to make a down payment of about 20% i.e. ₹ 20 lakh. You will take a home loan for the remaining ₹ 80 lakh. If we assume the average interest rate of a home loan to be 8.5%, then your monthly EMI for a period of 20 years will be around ₹69,426.
In the entire 20 years, you will pay around ₹86.6 lakh in interest. This means that the total cost of the house is ₹20 lakh (down payment) + ₹86.6 lakh (interest) + ₹80 lakh (loan principal) = ₹1.86 crore.
Now if we assume 6% annual property growth, then after 20 years this house will be worth around ₹3.21 crore. That means by spending ₹1.86 crore, you will become the owner of a house worth ₹3.21 crore after 20 years. You will have a permanent property.
What if you live on rent?
Now let us assume that you take a similar house on rent. Assuming the initial rent is ₹40,000 per month, then with a 10% increase every year, this rent will reach ₹2.67 lakh per month after 20 years. In total, you will have to pay a rent of around ₹2.75 crore in the entire 20 years.
However, you can get benefit by investing the difference between EMI (₹69,000) and rent (₹40,000) in the initial years. If we assume that this difference is invested with a 10% annual return, then after 20 years you will have a portfolio of around ₹64 lakh. But as the rent increases, the scope of investment decreases.
Direct comparison after 20 years
| Factor | Buying a Home | live on rent |
| Total Expenses | ₹1.86 Crore (Down payment + loan principal + interest) | ₹2.75 crore rent |
| Net Asset Value | House worth ₹3.21 crore | ₹64 lakh investment |
| Liquidity | Less | More |
| Benefits | The security of being an owner | Ability to change location |
That means, after 20 years, a person who buys a house will own property worth more than ₹3 crore, whereas a tenant may have better liquidity and freedom to change location, but his expenses will be higher and net wealth will be much less.
What is the opinion of the experts
Atul Monga, CEO and co-founder of BASIC Home Loan, says that renting a house is considered an easy and flexible option, especially for the youth who keep changing cities frequently due to job or studies. There is no long-term responsibility in this and one gets the facility of living immediately. But it is not beneficial in the long run, because the rent paid every month is an expense, but it does not create any wealth for you.
According to Monga, if you buy a house, it becomes your own property. This gives you the benefit of security, tax exemption and increasing property value. This is the reason why property is considered the best investment for the long term.
He says that nowadays home loans are easily and quickly available, which has made it possible even for first-time home buyers. It has been observed in many cities that the EMI given for a house is often the same or even less than the rent. In such a situation, buying a house is a more sensible decision for the long term.
Who will be in profit after 20 years
If rents are rising at 10% per year, buying a home makes more financial sense in the long run. After 20 years, you will have a valuable asset, while renting will increase your expenses far more and leave you with a relatively small investment.
However, this decision depends not just on the numbers but also on your job stability, desire to settle in the city and lifestyle.
