Today I was seeing some of old articles in Shyam Column and was wondering about Buy Home on Home Loan vs Renting a House.For me I bought a house at 7.5 % floating rate of interest to pay 12% floating interest today.
Should I buy home or rent? this is the question for lot of us. Some pointers I have learnt are
1. Buy one house where you want to settle in your life. if you are in your 30s, the place you work today might not be the place you want to retire after another 28 years.
2. Take home loan such that the EMI is less than 30% of your take home salary. Do not add your bonus, incentives and PF contribution and calculate the percentage of that.If both husband and wife are employed, plan the EMI on one of your salary to have flexibility.
3. Never buy home as investment because real estate returns have always been around 4% to 6%. this is even less than the bank fixed deposit. Also keep in mind the municipal property taxes that needs to be paid by you, while calculating the return
4. if you look at long term, what you need is money that gives you ROI and not a large house that does not give much returns. if you have a large home, build you house such a way that portions of your house can be rented. when we are young, we always wanted to build a large house all for yourself, but it should not be a problem to rent a portion of it, when there is a need.
5. Maintenance of large homes, after you children start their own life and move away is more difficult.
6. whether the interest rates are high or low, repayment helps to reduce the cost of ownership of your house.
To end with, When some loan interest rate were low in the past,but the real estate prices were high, and hence the cost of ownership of the house was high. Now when I hear the real estate prices have slowed down, the interest rates have gone up and the construction cost has gone up too making the cost of ownership of the house same or has gone up.
Sometimes, I think it is better to rent a place and live your life.