House Rent Vs Buy Calculator: Home loan rates are set to increase with the Reserve Bank of India (RBI) recently raising the key Repo rate. With this, the house rent vs buy debate is back on trend. Several new financial influencers have been arguing that renting would be better than owning a house at present. Is their claim true?
However, there are also traditional proponents of home buying who say that owning a house is always better than renting under any circumstances. In this article, we take a look at how true are both the arguments with the help of an example and the Rent vs Buy calculator of Fi Neobank.
Example: Suppose you can get a house on rent for Rs 20,000/month in Noida. You also have an option to buy a flat worth Rs 50 lakh in Noida by making a 20% downpayment and getting the remaining amount as a home loan from a bank at 7% interest for 28 years. Let’s see whether you will benefit from renting or buying, assuming the rent increases by 5% per annum, the home loan rate remains constant at 7% and you invest the savings from renting moderately while remaining neutral about rising housing prices:
- The calculator shows that the home loan EMI would be Rs 27,184. If you rent a house and invest your extra savings then your net worth after 28 years would be Rs 1.40 crore (assuming a 9% return on investment).
- In contrast, if you purchase a house by making the downpayment now then in 28 years, your net worth would be Rs 2.01 crore (assuming 1.6% home price appreciation).
Thus the calculator shows that you can make a profit of Rs 60 lakh by buying a house and paying an EMI instead of renting.
Here it is important to note a few points about home loans:
- Depending on age, you can get a home loan of up to 30 years tenure. The calculator shows that a 30-year-loan in the above case would return a benefit of Rs 86 lakh compared to renting!
- You can close a home loan at any point in time, or you can gradually decrease the home loan principal by depositing a lump sum amount to close the loan early.
- Home loan interest payment up to Rs 2 lakh/year also qualifies for tax benefit.
It is important to remember that buying a house is a very important decision in life. It becomes easy to buy a house if one already has a lump sum to make the downpayment. With housing prices increasing even in smaller cities, it may be wiser to buy a house as soon as possible instead of falling into the rent trap forever.