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Written by Jayant Upadhyay
Mr. Prakash Mehra, originally belonging from U.P is now working as a medical representative at a firm in Kolkata. He purchased a flat at ₹ 2, 67,000 in 2003. Now the price of the flat is somewhat round ₹ 20 lakhs. Over the last 15 years, the price of the flat has grown at an annual compound interest rate of 15%.
What would be better for him than investing on an asset, whose price has grown almost 8 times in 15 years? During these 15 years, he also let his flat on rent. Like Mr. Mehra, there are many persons who have increased their money with the right approach of an investment. The golden rule is invest at an early age for high returns. Late 20s or early 30s is the time, when one is less tied up with responsibilities. It is always better to seek an advice for those who have experience in investing at an early age.
A question that haunts most of us is whether we should keep paying the rent or buy a home? Let us make a comparative study and analyse the breakeven point –
|Scenario 1||Scenario 2|
|On a property worth Rs 70 lakh, A is paying ₹18,000 Rent per month, making the annual house rent ₹ 2,16,000. With every year, the rent increases 10% p.a.||B has purchased a property worth ₹ 70 lakh with a home loan of ₹ 50, 000, 00 at the rate of 8.5%. Let’s assume he has taken the home loan for 20 years.|
His EMI will be ₹ 43,391.
As evident from the above chart, the break-even point comes after 9 years. That means, after 9 years, A is still paying the rent, whereas B becomes the owner of the property. So in case if you want to stay for a longer duration, it’s always better to go for a home buying decision with home loan.
To give a major push to “housing for all by 2022”, Union Government is providing interest subsidy upto ₹ 2,67,280 on home loan under Credit Linked Subsidy Scheme of Pradhan Mantri Awas Yojana.
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