SIP Mutual Funds vs EMI Home Loan: Fools build houses, and wise people live in them – this British proverb is used quite often by those who live in a rented house. However, it is debatable whether it really makes sense to live in rental accommodation and use the money saved from the EMI home loan to make more money out of it. According to investment experts, if someone is unsure about their stability and the city they are going to settle in, it is better to live in a rented house than to buy a house and pay a loan. heavy real estate EMI. They said buying a house can be an emotional decision rather than an economic one if someone buys their dream house without thinking about the rationality of owning a house.
On when and why one should live in a rented house, Balwant Jain, a Mumbai-based tax and investment expert, said: “Banks do not approve more than 80% of the cost of home ownership as home loan.So a home loan seeker will have to hide the excess 20% of the cost of the property from their savings.Apart from this there is stamp duty and other miscellaneous charges which are not no longer financed by a bank loan. So, you have to look at your savings before asking for a house to lend.”
Speaking on other factors to be considered while applying for a home loan, Balwant Jain said, “If the person who wants to buy a house is posted in a city for a short period or if he has been posted to a city where she does not intend to settle, then living in a rented house is a better option.Real estate transactions have costs that cannot be recovered, such as stamp duties, registration fees and brokerage for the sale and purchase of the house.He said that in the long term, the price of real estate increases by about 8% per year.
On how living in a rented home can help a person accumulate wealth over time; Pankaj Mathpal, Founder and Managing Director of Optima Money Managers, said, “Suppose someone wants to buy a 2 BHK flat in ₹35 million. To buy this ₹35 lakh at home will require fish stamp duty, registration fee, brokerage (if any) etc. out of pocket, which would cost approximately ₹5,000,000. So the net cost of the house, including all those hidden costs, would be ₹40,000,000. As the banks do not disburse more than 80% of the cost of the property in the form of a mortgage, we would move ₹28 lakh as home loan. Bearing in mind that some NBFCs give up to 85% of the cost of the property as a home loan, one can get a maximum ₹Home loan of 30 lakh for a house that costs ₹35 to a home buyer.” Mathpal said that for ₹Home loan of 30 lakh for a period of 20 years, monthly EMI would come ₹25,000. He advised homebuyers to use the excess EMI home loan through SIP Mutual Funds in monthly mode as it would give at least 12% annual return on a 20 year investment.
Asked about the rentals you can expect ₹home ownership of 35 lakh; Amit Agarwal, CEO of NoBroker.com, said: “One can expect 2.5% per annum to maximum 3% of the cost of property per annum as a rental of one’s residential property, whereas in the property commercial rental income is between 8 and 12 percent per annum, depending on the location and type of commercial property one owns.” He said real estate rents were also rising at around 5% per year.
So, assuming 3% of the cost of the property in annual rent, you will have to pay approximately ₹1,05,000 per year or ₹8750 per month for a ₹35 lakh property while a home buyer will have to pay ₹25000 per month to live in the same accommodation leaving aside ₹One-time payment of 10 lakh at the time of buying the house.
Therefore, if a person decides to live in a rented house instead of buying ₹35 lakh at home he or she can save ₹16250 per month from his monthly EMI. If the home buyer invests this ₹16250 in mutual fund monthly SIP for 20 years, then it will turn out to be around ₹1.50 crore after 20 years if the annual return is 12%.
Apart from that, we ₹10 lakh that one would save would turn around ₹92 million. Thus, the net amount at maturity that we would obtain after 20 years will be approximately ₹2.42 crore.
Apart from that, the person living in a rented house for 20 years will end up paying ₹35.67 lakh as well.
Thus, the net income of the person living on rent for the next 20 years will be approximately ₹2.06 crore.
Similarly, in 20 years, we ₹Ownership of 35 lakh house will reach ₹2 crores. However, it must be remembered that this ₹2 crore will be the cost of a new house and not a resale house property. “The old house will fetch less money because there would be a depreciation of almost 1-1.5% in the resale property,” said Pankaj Mathpal of Optima Money Managers. So, if a person decides to sell his property after living there for 20 years, it will earn him about 1.78 crore.
Thus, a person living in a rented house will end up accumulating ₹28 lakh more after 20 years than the one who bought ₹Ownership of the house from 35 lakh.
Warning: The opinions and recommendations made above are those of individual experts or personal finance companies, and not of Mint.
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