Thoughts

Why Renting a House is Better than Buying thru Home Loan

One of the SILLIEST things I see people doing nowadays once they get a decent job is to buy a house. That too by taking a housing loan for more than 50% of the property value. Many times even higher.

Buying a home when we have the money to pay upfront is better – except for the astronomical land values and the hassles of shared ownership in apartments. (An own house still creates inflexible lifestyles and cripples our freedom, but that’s beyond this topic.)

But why take a huge loan for a very long term (10-25 years?) that too at a floating rate of interest is BEYOND ME.

If you analyze the total value you’d be paying for the house, it would be a minimum of 2-3 times the loan value. Minimum. The housing loan provider keeps increasing the rate of interest and your loan tenure keeps getting longer!

So, in effect, you’d be paying rent to the banks instead of paying the house owner.

Instead, if you just rent a house, you can keep changing houses and even cities/countries as you please. You never know where your job might take you next, or where you might want to settle down after a few years.

You can increase/decrease rental value as per your affordability and life preferences. Majority of your savings are not locked down by EMIs, so you can even invest in riskier but high growth avenues like stocks or a new business.

But when you buy a 3-bedroom house when your family comprises of just 2 or 3 people, it is not only a waste of space + maintenance hassle but also results in a huge financial strain at a time when that money can be better invested elsewhere – like education, travel, gadgets, etc.

I believe in having a lot of flexibility in life. Freedom to do what we want should not be crippled by loan sharks. That’s why I feel buying a house when you can’t afford it and when your intention is to just replace the rent with a much higher EMI is SILLY.

If you think that it’s OK to work hard and surrender your freedom in order to create a better life for your children, think again. In most cases, your children would continue to pay your EMIs and fight for who gets how much share in the property.

Destination Infinity

18 Comments

      • Kirtivasan

        Buying a home is a 24 hour thing. Meaning 24 hour security for the family. 24 hour investment. 24 hour thoughts on how to decorate, how to improve civil work maybe.
        Government plans like Awas yojana are low cost and low rate loans.
        It is tough to like the government policies. But they are actually simple only. You need documents. Queue may be large but if you make a statement like ” House at any place”, “Transfer to any place” clauses then sense prevails and queues becomes less.
        This is not what you want me to write. Right? Not your concern. True.
        Accept it.

  • SG

    Thanks for the information. Your information is true for India and not for USA. There are many advantages in owning a home in USA. Interest rates are less than 5%. You can take a deduction on your income tax for the interest you pay on the housing loan. The interest rate cannot be changed. And, the home prices (independent houses and flats) go up all the time. You can sell the house/flat after a few years and make a good profit. As they say, the best investment is an investment in real estate.

    • Rajesh K

      Here in India, the home loan interest floats around 10-15%! There is a small IT deduction for salaried ppl here too, but that’s more of bait to get people in than provide them a substantial advantage. There are other issues like builders floating Govt. norms, maintenance issues in apartment associations, and lack of transparency in land ownership (in case of land). And these issues are just the tip of the iceberg.

      Destination Infinity

  • Jeevan

    Yes, loans eat away the whole! I don’t think people benefit lot by taking loan and there is continues pressure until one repaid. Buying a house is much better than investment in flat… today we feel of buying a land than buying a flat where we lived from 2005-2013 and the maintenance is a biting issue always and we couldn’t decide anything individually as many things come under common.

  • Kirtivasan

    Government has awas yojana for handicapped. Documents needed. Actually easy.
    I had bought a plot in UP. Then sold it to brokers of Ranchi. It was a huge plot.Sold it myself using thumb rules.
    What will you do harm to me in Ranchi, jeevan?

    • Kirtivasan

      The floating rate interest is a 24 hour thing.
      Meaning 24 hour family financial discussions on savings and ammortising loans in chunks at a suitable time.

  • Kirtivasan

    Salaried people get House rent allowance. And usually this amount is used to repay loans. So, where does the question of eat the whole arise, jeevan?
    You say buying a house. But investment in flat. This is a learning.
    Maintenance is a biting issue for you because you people are confused on single storey or double storey.

    • Kirtivasan

      It is better to move with the crowd. House loans are no different. One should follow the crowd.
      There is only one word which is worthy. OPPORTUNITY.
      The day I learnt this word from my boss I was a changed man.
      Before that I believed in SUCCESS.