Home loans
Rent or buy a house? A 20-year comparison in rupees
Buying a ₹60 lakh flat with a 20-year loan costs about ₹1.28 crore in total payments, and the flat could be worth about ₹1.59 crore after 20 years. Renting and investing the money you save can leave you with more, but only if you invest that money every month without fail and earn more than about 6.5% a year.
The two paths
Buy: pay ₹12 lakh down and about ₹4.2 lakh for stamp duty and registration, and take an ₹48 lakh loan at 8.5% for 20 years. The EMI is ₹41,656, plus about ₹3,000 a month in maintenance.
Rent: rent a similar flat for ₹18,000 a month, rising 5% a year. Invest the ₹16.2 lakh you didn't spend upfront, and invest the gap between the owner's monthly cost and your rent every month. In year one, that gap is about ₹26,700 a month.
After 20 years
| Buy | Rent and invest | |
|---|---|---|
| Total paid out | ₹1.28 crore (EMIs, down payment, fees, maintenance) | ₹71.4 lakh in rent |
| What you own | The flat: about ₹1.59 crore if prices rise 5% a year | Investments worth the amounts below |
| Return on the renter's investments | Renter's investments after 20 years | Compared with the flat at ₹1.59 crore |
|---|---|---|
| 6% a year | ₹1.42 crore | Buying wins |
| 7% a year | ₹1.67 crore | About even |
| 8% a year | ₹1.97 crore | Renting wins |
| 10% a year | ₹2.74 crore | Renting wins clearly |
If property prices rise 6% a year instead of 5%, the flat would be worth about ₹1.92 crore, and the renter would need returns above 8% to stay ahead.
What the numbers don't show
Reasons to buy:
- No landlord can ask you to move, and you can renovate as you like.
- The EMI forces you to save. Many renters don't actually invest the difference every month.
- After 20 years you live rent-free, which matters a lot in retirement.
- Under the old tax regime, home loan principal and interest can lower your tax.
Reasons to rent:
- You can move easily for a new job or a better school.
- No big upfront cost, so your savings stay available for emergencies.
- In big cities, rent is often only 2.5% to 3.5% of the flat's price a year, which makes renting relatively cheap.
A simple way to decide
- Buy if you plan to stay in the city for 10 or more years, the EMI is under 40% of your take-home pay, and you still have an emergency fund afterwards.
- Rent if your job may move you, the EMI would stretch your budget, or you're disciplined enough to invest the difference through an automatic SIP.
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