You are working, salary is good. You want to buy a house by taking a home loan, but wait. You come across an influencer’s post on social media claiming renting may be more profitable under current circumstances. But you want to enjoy the perks of living in your own house as well. Now you are in a dilemma. How to get over it?

While there can be no objective answer to which is better between buying a house or renting it, there are several points that you may look at to make the right decision. Be it renting or buying, either decision can have a large impact on your finances both in the short term and long term.

“While it is a personal decision that depends on a number of factors including the state of your finances, one must also take into consideration the macro conditions that affect the market and the economy,” says Praneet Battina, Investment Research, Fi Money.

One of the most important macro factors is housing market dynamics. The housing market is highly localised because demand and supply vary based on location which in turn impacts the cost of buying or renting.

“For instance, the housing market in Delhi NCR had a 65-month-long inventory overhang compared to below 30 months for Pune and Chennai, according to the Real Insight Residential – April-June 2022 report. Pune and Chennai also saw the sharpest growth in prices over the year at 9%,” says Praneet.

Also Read: Rent vs Buy: Rs 60 lakh profit on buying Rs 50 lakh house than renting for Rs 20,000/month

Another macro factor to consider is the interest rate cycle. Experts say that this is important because it sets the bar for home loan rates which in turn affects affordability. In a rising interest rate scenario, home loan rates go up making it more expensive to buy a house whereas the opposite is true when interest rates fall. From another perspective, rising interest rates make it relatively cheaper to rent.  

Other factors to consider

According to Praneet, there are several other factors on the personal front that one should look at:

  • Home loan rates are of prime importance for potential homeowners. Apart from the interest rate cycle, your credit score too will play a role in determining the cost of your loan.
  • You also need to make sure that the monthly loan repayments don’t take too much out of your or your family’s disposable income. 
  • The amount of time you are ready to stay put in one place is also important when comparing the cost of renting versus buying a house.
  • Renting is better for short durations but it can turn out to be more expensive than buying a house, especially in an inflationary environment, in the long run as the rental amount appreciates each passing year. 
  • Another factor in comparing costs between the two options is how disciplined you are with your money.
  • Many consider buying a house as a forced saving. If you already have a habit of saving and investing, then paying expensive EMIs can come at the cost of investing in assets with better returns. This also depends on what kind of risk appetite you have when it comes to investing and how much you expect the value of your house to appreciate in the future. 

Also Read: Should you buy a house or rent it?

Apart from the above, there are many more factors that may not be quantifiable like the security of owning a house or achieving a life goal. If the rent vs buy calculation dilemma is not solved yet, you may consider taking advice from a professional financial adviser.

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