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Should you Rent or Buy?

In the year 1977, a Hindi film called Gharonda (Nest) told the story of Chaya and Sudip. A young soon to be wed couple’s dreams goes kaput, when they invest in a small flat after much deliberation and the builder turns out to be a fraud who absconds with their life’s savings. Maybe, things would have been different if Chaya and Sudip had decided to begin their life in a rented home instead! But that was a story on celluloid, told when situations were much different from what they are today.

Things may have changed drastically, but the yearning that every human being has for a roof over one’s head remains intact. But, how do you know what is the right time to purchase your own property? If you are currently facing a dilemma about whether you should continue to stay on rent or take the big step ahead towards home ownership. Here are some pros and cons of both you should consider.

Buying your own home is definitely a big financial obligation not just for yourself, but for family as well, as you will spend a substantial part of your salary repaying the mortgage loan. But there are definitely the following upsides-

Advantages of Ownership:

  • You have the joy of owning your own home after the mortgage has been repaid, and by the time that happens your home is going to be worth much more than you have bought it at.
  • You can claim tax deductions under Section 24 and Section 80 C of the Income Tax Act on both the interest and principal payments you make.
  • Once your mortgage is over and the value of your property has gone up manifold, you can use the proceeds to buy a better home or think about a cozy retirement home if you wish to save some additional cash for life after retirement.
  • You do not have to worry about paying rent or EMIs after retirement and can live in peace.
  • You can make modifications to your home as you wish without the landlord breathing down your neck.
  • Sometimes it can be cheaper to buy a flat than rent it.

Disadvantages of Ownership

  • You are locked-up in debt for a good number of years.
  • Affordability is a big factor. If you stretch yourself too much to take a loan, you may not be able to shell out money for any additional expenses that may be required for the maintenance of your home.
  • If your job takes you places and you are required to move lock, stock and barrel to another country, it may be really difficult for you to sell out your property at a good price within a short time frame. A distress sale may prove to be damaging to your finances.
  • If you have taken a loan with your spouse and marital problems crop up in due course of time, splitting the property may be an expensive and complicated affair.

Advantages of Renting

  • You have the freedom to move to any location once your lease gets over.
  • You do not have to worry about being fired or not being able to take a break from work because you have a mortgage to think about.
  • The cost of renting works out to be much cheaper than owning a house. Besides diligently paying EMIs, the homeowner has to put aside at least 1% of his purchase price for the purpose of maintenance or repairs. A renter has no such worries.
  • Most of the salaried individuals have House Rent Allowance (HRA) as a component of their salary. A salaried taxpayer is eligible to claim HRA under Section 10(13A) under the Income Tax Act.

Disadvantages of Renting

  • You can miss a great opportunity in the housing market
  • You are giving your money to your landlord. You will never see it again.
  • You are at the mercy of your landlord and will have to move whenever he wishes to end your lease.
  • You may have to pay a deposit up front for damages. You will also have to pay a rental deposit - usually equal to a month's rent.
  • For each fixture or repair you have to haggle with your landlord who may decide to do it at his own sweet time.
  • The tax benefits are not as sizeable as that of owning a house.

When the interest rates remain low, it may be fair to compare the advantages and disadvantages of renting versus buying, but when the interest rates are on the climb, it may make sense to rent, till prices fall again. Making the choice between renting and buying may sound more difficult than just making a comparison on the interest rate factor.

The essential thing is when you are living on rent, you may be willing to make several compromises on space and location, because you know you will ultimately move out. But that is not the case when you buy your own place, so make sure you weigh all the pros anc cons and choose well.