Renting Vs Buying: Which Option Saves You More Money?

While owning a home builds stability and long-term wealth, it requires planning and commitment. Let’s explore its benefits and challenges

Renting offers flexibility without the hassle of selling or maintaining the property

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Deciding between renting a house and buying one can be a tough decision that must be taken carefully. While renting gives you more flexibility, and is affordable in the short term, buying a house can give you long-term stability, and the chance to build an asset. But neither option needs to be permanent—you can always choose differently if your needs or financial situation changes. Let’s dig deeper into this debate and help you decide which option works best for you.

Buying A Home

Buying a home is a big milestone and an important aspiration cherished by millions across India. A recent pan-India personal finance survey titled Aspiration Index 2024 notes homeownership to be among the top three goals that Indians aspire to. While owning a home builds stability and long-term wealth, it requires planning and commitment. Let’s explore its benefits and challenges.

Benefits 

• Building equity: Property values typically appreciate over time, which makes buying a house a profitable long-term investment. 
• Tax benefits: Home loan borrowers can claim deductions of up to ₹1.5 lakh on principal under Sec 80C and up to ₹2 lakh on interest under Sec 24 of the Income Tax Act.
• Portfolio diversification: Real estate often appreciates and can generate rental income, adding stability to your portfolio. 
• Stable payments: Home loans, whether fixed or floating, come with an amortisation schedule, ensuring repayment clarity and helping with better financial planning.
• Freedom and stability: Owning a house gives you the freedom to personalise it as you like without worrying about landlord’s restrictions, having to move, or sudden rent hikes.  

Drawbacks 

 

• High upfront costs: Home loans require a sizeable down payment, in addition to other charges like registration fees, and stamp duty, which can add to your overall cost and deplete your savings. 

 

• Less flexibility: Unlike rented accommodation, selling a house or relocating takes time and money (shifting costs, legal paperwork, brokerage fees, etc.).
• Maintenance expenses: Houses require maintenance, especially as they get older. Costs of repairs and renovations can add up over time. 

 

• Low liquidity: Selling a house can sometimes take months, especially if the markets are down. This means your property cannot be converted into cash as quickly as you may need.

 

Renting A House

Renting offers flexibility without the hassle of selling or maintaining the property. Whether it suits you depends on your lifestyle, finances, and future plans.

Benefits 

• Lower upfront costs: When you rent, you only need to pay a small security deposit worth a few months’ rent. This is much less than a hefty loan down payment which can be a few lakhs.  
• Greater mobility: With a rental, you have the flexibility to relocate easily when you need to, without the hassle of selling or renting out your property. 
• More disposable income: Since rents are usually lower than a home loan EMI, you have extra cash that you can save, invest, or use for routine expenses. 

Drawbacks

• No ownership or equity growth: Renting only allows you temporary access to your accommodation and the money you pay does not go towards building an asset.   
• Rent hikes: With no real laws in place to regulate rent hikes, most landlords typically increase rent by 5-8 per cent annually. This can make it challenging to plan your finances in the long term.
• Uncertainty: Renters have little to no control over their rent increases and lease renewals. They are also vulnerable to eviction if the owner decides to sell the property. 

Renting Or Buying – Which Can Save You More? 

Let’s compare two scenarios of buying and renting a house and how much money each can potentially save you. 

If you take a Rs 80 lakh loan at 8.15 per cent for 25 years, your EMI will be around Rs 62,542, totalling Rs 1.87 crore with interest over the loan tenure. Selling this property later could help recover costs or earn a profit if property prices rise. 

Renting a similar home at Rs 25,000/month, with a 5 per cent annual hike, would cost about Rs 1.43 crore over 25 years. While this is lower than a home loan repayment, it doesn’t give you ownership.

Which One Should You Choose?

Whether you want to buy a house or rent one is a decision that depends on your financial stability, future plans, and investment goals. If you want the stability of having your place and diversifying your portfolio, paying EMIs makes more sense. On the other hand, if you prioritise flexibility, don’t want to tie down your funds for the long term, and prefer to keep your costs low, renting may be a better choice. In the end, the best option is the one that works best for you and your needs. 

(The author is the Senior Manager-Communications at BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)