A young couple named Rahul and Simran had just gotten married. They were excited to start their new life together and were faced with the big decision of whether to buy or rent a house.
Rahul believed in owning a home, while Simran preferred renting. They both had valid points, making it challenging to reach a decision.
Rahul debated that owning a home is a long-term investment that provides financial security and stability for the future, property values appreciate over time and can provide a sense of pride.
Simran debated that renting is more flexible and allows them to move around and explore different locations without being tied down. Renting also requires fewer upfront costs, and the monthly payment is often cheaper than a mortgage payment.
So, this way they were not able to decide, what they should opt for. Hence, they decided to jot down all the factors, pros, and cons of both renting as well as buying.
However, beforehand we need answers to a few key questions that are often asked – till when one should live on rent? How can one build a corpus to buy a house? And, when is the right time to buy your own?
“Why pay rent when you can pay EMI and own an asset??”
People often debate that buying a home is a smart decision because the value of the house increases over time, while rent payments yield no returns. However, there is a major flaw in this argument upon closer look.
We all want to buy our dream home and with the easy availability of loans, it seems a reality. So we go ahead and take huge loans and squeeze our monthly budgets to make sure we can pay the EMIs. And for the down payment, we go all out, taking out all our savings and if that’s not enough, taking help from our parents.
Buying a dream home can be exciting, but it’s important to consider the long-term financial implications. Using up all your savings can leave you with nothing for other important goals. Unexpected expenses can add to the financial burden, so it’s crucial to weigh the pros and cons before making such a significant decision.
But wait, what about all the tax benefits Home Loans come with?
Yes. This is another major reason people think buying a house is a smart idea. With tax benefits on the principal amount, the interest you pay plus some more benefits if you are a first-time buyer, it does look like home loans are a smart way to reduce tax and own your house.
Tax Benefits on Home Loan:
- Section 80C :
– Tax deduction up to ₹1.5 lakhs for principal repayment
– This may include stamp duty and registration charges as well, but that can be claimed only once.
- Section 24:
– Deductions of up to Rs.2 lakh on the interest amount
– These deductions apply only on the property whose construction is finished within five years.
– If it doesn’t finish within this time frame, you can claim only up to Rs.30,000.
- Section 80EE:
– First-time homebuyers can claim an additional Rs.50,000 on the interest amount every financial year.
– Loan Amount > Rs. 35 Lakhs
– Property Value < Rs. 50 Lakhs
Now, home loan providers offer special schemes and benefits to women to help them become homeowners.
The case of Renting a House – No debt, flexibility of change, and the tax benefit of HRA
So, for the initial few years, living on rent will give you a breather to sort out your finances and save some money toward buying a house.
Renting provides more flexibility and less stress, as you can easily move closer to work if you change jobs. This can significantly save time on commuting and makes a big difference in the quality of life particularly in busy cities like those in India.
Secondly, while the homeowners get a host of tax benefits, if you are living on rent, you can claim a tax benefit on the House Rent Allowance (HRA) component of your salary.
Not having any debt means less stress and more flexibility in taking career risks like joining a start-up where the salary might not be high but you get to learn or start a business.
So, does that mean you should live on rent forever?
Well, we are not saying that. Buying a home is a big milestone with emotional ties for many Indians, but it’s a significant financial decision.
Alternatively, start with a home that fits your budget and upgrade to your dream home once you’ve built a financial corpus.
Buying your dream home is great, but plan ahead to enjoy it fully. Without proper planning, a large mortgage can hinder critical goals like retirement or education. A little planning now can lead to a lifetime of happiness of moving into your dream home.
Start planning early and make investments based on your multiple life goals. LXME helps you plan for it using the Goal calculator in the Plan tab. We offer 8 time and goal-based portfolios which are diversified, well-researched, and curated by experts.
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