The ultimate goal for most of the lower middle-class and
middle-class families is to live in their own house. But considering
the ever-escalating property prices, rising and fluctuating interest
rates, long tenure of loan repayment schedule and uncertainty in
connection with jobs and income, at times we would wonder if it is all
worth the trouble.
The pros and cons of this dilemma,
whether to go for an own house on loan or to live in a rented place, is
discussed in this column:
Venkat is 31years old,
recently married and is in search for an apartment. He and his wife
liked a two-bedroom apartment costing Rs.30 lakh and they decide to
approach a housing financial institution (HFI) for a loan.
The
HFI’s terms were – loan value of 80 per cent of the property (Rs.24
lakh), rate of interest at 11 per cent (floating rate), and a loan
tenure of 20 years (EMI of Rs. 24,773).
The
EMI commitment was almost 50 per cent of his current net income which
got Venkat worried. He calculated the total interest and principal
outflow over the scheduled 20 years of the loan repayment period and was
stunned to see the figures – Rs.59,45,520 (Rs.24,773 x 12 months x 20
years). He would have to pay Rs.35,45,520 towards interest alone!
One
of the alternative options he considered was to continue to live in a
rented place by avoiding living in an own house, thereby also avoiding
taking a loan. The rent for their current house was Rs.8,500 p.m. and
the annual rental hike as per the agreement with the landlord was at
five per cent.
Even if he considered the rent as his
expense over the next 20 years, his outflow would be Rs.33.80 lakh
(including five per cent year-on-year increase in the rent). Instead of
taking a loan and paying Rs.25,000 as EMI for 20 years, if he continues
to stay in a rented house, pay the rent of Rs.8,500 and invest the rest
(Rs.16,500) in such opportunities that can give him a compounded return
of 12 per cent p.a. he could create a corpus of Rs.1.65 crore.
Want to make an analysis for a better decision making..? Go to: NY Times Interactive Tool
Read more at Source: The Hindu