Buying a home is a crucial life decision, and several people in India dream of buying their own home. Renting a property seems more financially sound to some people as they don’t have the financial capacity to buy a property. However, several people are buying a house with home loan rates in India becoming more affordable.
Buying a house is not the right choice for you simply because there’s the option of taking a home loan. Deciding between renting or buying a property is not an easy task. But here are a few factors that can help you decide what’s right for you
1. Time You Want to Spend in the House
Before deciding whether you should buy or rent a house, you should ask yourself whether you are looking for a permanent settlement. Some people have a transferable job that requires them to move from one city to another after every few years. Some people prefer the nomadic lifestyle and do not like staying in the same house for a long time.
If you fall in one of the two categories, buying a house might not be the right decision for you. If you are shifting to a different location due to a job change or any other reason, you will have to undergo the hassle of selling your property. Therefore, renting a property will be more suitable for you as you will be able to move out without much hassle.
2. Consider Your Financial Situation
You should start by estimating the costs of renting and buying a house. Remember, just because home loans are available does not mean you are eligible for them. Moreover, home loans are a long financial commitment, and you will spend more than a decade repaying them.
Therefore, you need to ensure whether you can afford to keep paying the EMI of your home loan. Use a housing loan calculator to estimate how much you have to pay and how much you can afford. If you have to spend more than 40% of your annual income on home loan EMI, buying a house is not a prudent choice.
3. Lifestyle and Flexibility
Before making your choice, think about your lifestyle and what kind of flexibility you are looking for. In a rented house, you will have to follow your landlord’s terms at every step. You will not have the flexibility of modifying your house whenever you want.
But when you are the owner of the house, you will be able to live on your terms. If you want to repaint your house two years down the line, you can easily do it. If you wish to do any other modifications in your house, you have the flexibility of doing it without anyone’s permission.
Opt for a Home Loan to Buy a House
Nowadays, it has become easy to acquire a home loan to buy a house. A fascinating option is to choose an interest-only home loan. Some banks offer an interest-only home loan if you want to purchase a completed residential property. In an interest-only home loan, the borrower is only required to pay the interest accrued on the principal outstanding amount.
The cash flow burden reduces during the interest-only period. But the overall repayment is often higher. Suppose you are taking out a home loan of Rs 50 lakh at an interest rate of 8% and you choose a loan tenure of 30 years. The monthly EMI for your loan will be Rs 36,688. The total payable amount including the principal plus interest would be Rs 1.32 crore.
If you choose an interest-only home loan with an interest-only period of 3 years, you will have to pay Rs 33,333 every month for the first three years. After the end of three years, you will start paying an EMI of Rs 37,713 per month. Therefore, the total cash outgo in this case would be Rs 1.34 crore with an additional liability of around Rs 2 lakhs.
Several conditions need to be weighed in before finalising your decision about buying or renting a house. If you want to know about tax benefits, both options can provide you with various benefits.