Why paying EMI is always better than paying Rent
A common refrain heard is that it is better to pay an EMI and own a home, rather than pay a rent and make someone else rich”. While this argument does have merits of its own, there are certain times when paying a rent makes more sense. So, for taking a decision of buying/renting after carrying out an analysis of your financial position,debt-income ratio, need vs want of owning a home, expected trends in the property markets and other factors. But here we will see some of the benefits of paying Equated Monthly Installments(EMI) in buying a home over the rent.
Besides getting to own an asset the principal repayment of your home loan is eligible for deduction under Sec80C. It means you are better equipped to make use of the entire deduction allowed. Also, interest payable of up to Rs 2 lakhs is deductible from your income. If it is a joint home loan, both the spouses are eligible to claim deductions up to Rs 2 lakhs, if the loan repayment is done in equally by both.
Source of Additional Income:
One can always rent out the property if not occupied by self and paying the EMI. This could lower some burden of EMI payment.
When EMI Makes Sense Financially:
The first factor to evaluate in the rent vs EMI debate is your financial position. You may have found the perfect house – which is close to work and school and has all the amenities you need for a good life close to you. Find out the approximate price with all additional costs. Paying EMI will be better if this sum is more than 75% of your proposed EMI.
How much Upfront Payment can you Afford?
Generally, you may be eligible for a home loan that covers up to 80% of the cost, means, you have to pay around 20% to 25% of this amount upfront as your contribution. For example,with your down payment, you will get a loan amount of Rs: 48 lakhs for a Rs: 60lakh home. This would put your EMI at approximately Rs: 50,000 per month, based on current rates of interest. If you can pay over 50% of the value of the home as your contribution, then that will be a good idea for you to invest and pay EMI.
Will you be Ready for Pre-Payment?
In an ideal scenario, you should be prepared for a total pre-payment of your loan amount within a few years of beginning it. Keeping in mind that making regular EMI payments will get you a good discount when you work on pre-payment. So, calculate your finances and make a projection of where you will stand a decade or so after taking the loan. Pre-paying even a small amount of around Rs: 10,000, in a reducing EMI scheme,will help you make some good savings while buying a home. This will help you making a decision on buying a home with EMI.