Renting or Buying a home – Should you stop renting and buy a home? What are the costs involved? Calculate the hidden costs for renting or buying.
If you’re ready for the commitment, you bet!
Yes. Buying a home is a big decision. A big commitment, too. But if you think renting vs buying a home thoroughly, clearly understand your financial situation, and you’re ready for the short- and long-term responsibilities, it can be one of the most rewarding decisions you’ll ever make. Once you decide on renting or buying a home in India, Loanyantra helps in building the bridge between you and your dream home.
Renting vs Buying – Why buying a home is a good idea.
Every EMI payment you make is part interest and part principal. The principal is what you owe on the loan and it goes directly towards your home’s equity. It’s like investing in yourself. Which is a lot better than 100% of your rent payment going to the landlord. Plus, whenever home values (land price) increase (and historically they do) so does the value of your home.
The interest portion of your monthly payment is like any other interest. It’s the fee you pay for borrowing the money. However, the great thing about home loan interest is it’s tax deductible. And so are your property taxes.*
Live your way:
Do you feel comfortable in a sparse, minimalistic space design? Or do you like different colored walls and pictures everywhere? As a homeowner, you’re free to live, decorate and change your home however you want. Rented houses’ owners do not allow the walls to be drilled or make the way comfortable for you.
What the experts say on renting or buying a house in India.
Many experts in the real estate market believe it makes good financial sense to buy your home rather than rent. Experts predicted that rents for apartments would increase year on year nationally – by average 8% in 2014-2015 – by 7.5% each year in 2015 and 2016. Though due to demonetisation in India, the residential rental value remained same in some areas for an year, now there is again a steep increase and rents will continue to increase year on year.
If the average national home loan interest rate hovered around 10,5% (they’re much lower today), home ownership may well be a better investment of your money, especially if you plan to stay in the home for at least five years. Experts estimate that buying will be cheaper than renting until the 30-year fixed rate reaches 12%, more than what it is currently!
Important homeowner costs to consider.
Different loans require different amounts. The RBI allows LTV (Loan to Value) of
90% for home loans up to INR 30 Lacs
80% for loans between INR 30 and INR 75 Lacs
75% for loans beyond INR 75 Lacs.
While deciding on renting or buying, down payment calculation is a must. Decide on your budget, calculate your savings, keep it ready for down payment.
Property insurance or home insurance is recommended, once you get into your home. Flood or other types of coverage may also be required.
Now, in India, home loan insurance is made mandatory. Insurance on home loan supports your family in any unforeseen event by paying the outstanding loan amount. The home loan insurance offered by the loan cover will progressively come down as the home loan gets repaid. For instance, by the 10th year, if the loan cover would have been to be Rs 13.5 lakh. By the 14th year, it would have been reduced to about Rs 3.5 lakh.
Varies widely. Determined by local city or state government. The fact that the local municipal authority is the force behind the property tax being levied must tell you a lot about how the money you pay goes to towards the maintenance of the basic civic services in your city. The property tax in India is only charged on the real estate building and not on the plots of land, which don’t have any establishment in its vicinity.
Maintenance and home improvement:
From a leaky faucet to new paints, you don’t have to fix everything yourself, but paying for and getting it done is your responsibility. Maintenance charges to the society need to be paid which you pay even when you stay for rent in a house. But for the next five to ten years, you need not worry about the shifting or transportation charges, home improvement costs and repair costs if you had used average quality for the first time.
But over the time, you have to be responsible for your sweet home for making it look good and neat. You can also do a makeover whenever needed with the home improvement ideas and facilities in the market by top-up loan or home improvement loan. Once you are a loanyantra customer, loanyantra helps you in getting the best interest rate in the market at a discounted price.
Why you should stay for Rent? Reasons to keep renting for now.
Sometimes, due to your personal situation and long term plans, renting is currently a better option.
- You anticipate a change in employment or income in the near future.
- You’re not comfortable making a long-term commitment to a particular location or area.
- You need to build a stronger credit history.
- You’re not prepared to handle responsibilities like leaky faucets, paint and other routine maintenance.
- You’re not financially ready to cover monthly and yearly costs for utilities, insurance and taxes.
Rent if – You are currently prioritizing other financial goals above homeownership. Buy if – Homeownership is your primary financial goal, and you are both aware of and comfortable with how the cost will affect your progress towards your other goals.
** This summary is based on a Rs-30,00,000 home loan amount, loan term of 240 months and an interest rate of 10%.