Rent or buy: What to Consider Before you Apply for Home Loan

To buy a home, or to get a house on rent, is often the question at hand for a lot of people.

It is difficult to make a choice: in addition to the financial impact, there are other factors that come into play as well. To help make you a decision, it is best to compare the outflows that you would incur when buying a home, compared to the rent you’ll have to pay.

If you’re Leaning towards Buying

Buying a home in any of the metros entails a high investment of your resources. To keep liquidity intact and rake in tax benefits, home buyers apply for Home Loans to various banks and financial institutions.

Your Home Loan Eligibility is based on various parameters—your age, levels of income, nature of employment, number of dependents, earning status of your spouse and your outstanding liabilities. These factors are scrutinised to assess your ability to pay back the Home Loan principal and interest through an EMI scheme.

If you want a higher amount financed, you can take a Joint Home Loan with your spouse, parents, or earning children.

Costs Incurred: In addition to the EMI, which is derived using a Home Loan EMI calculator, there are other costs involved when you apply for a Home Loan. These include application fees, processing fees, legal fees and service charges. So, the acquisition cost of the property will include the loan, the interest, and incidental charges.

In the current scenario of falling Home Loan interest rates, you can get a Home Loan for as low as 8.5%. If you’re able to lock in at this rate, you can enjoy a financial advantage; your cost of acquisition comes down considerably.

If Renting is your Preferred Choice

The outflow are the monthly rental amounts, which are subject to an annual increase. A rented place offers you the choice to change if you are not happy. You will have to shell out brokerage charges as well. You might get emotionally attached to the place, but at the end of the lease period, you will have to vacate, unless the owner does not find another tenant.

How India’s Major Cities Fare in the Buy vs Rent Debate

Let’s take a look at the buy vs. rent debate in the context of a few of the country’s major cities. Real estate prices, as well as the rental charges, have fluctuated quite a bit. You’ll need to weigh the financial impact of both. A few cities have witnessed an upward trend in property prices; others have stagnated in terms of real estate prices, but experienced a rise in rental values.

This scenario is typical in cities like Home loan in Bangalore and Pune, IT hubs that attract a predominantly floating population.

• Mumbai scores high both in terms of soaring property prices as well as rentals, though both have stabilised in the recent past. But, when compared to other cities, India’s financial capital does leave a sizeable dent on its inhabitants.
• Cities like Ahmedabad, Hyderabad, Indore, Kolkata, and Jaipur offer a number of affordable homes for sale. It’s better to rent out homes in Pune, Bangalore, Chennai and Delhi-NCR.

It is every Indian’s dream to own a home in their lifetime. The financial impact is blurred by the social pressure of ‘having to’ own a home.

Recent trends have dictated a steady increase in the demand for Home Loans. With Home Loan interest rates hitting a new low, post demonetisation, you can expect a greater proportion of the population to queue up for Home Loans to finance their dream purchase.

If you think that EMIs will soak up your money, you can always fall back on the rental option.