Every Indian dreams of becoming a homeowner as most Indians associate buying a home with mental and financial security.

The real estate sector is one of those sectors that have delivered amazing returns over and over again. Thus, Indians believe that investing in a home is one of the smartest ways of building an asset and working towards building future financial security. However, the prices of homes have multiplied manifold over the last few decades. Today, it is nearly impossible for most people to afford to buy a home by paying the entire cost in one go. Therefore, these days, most homebuyers opt for a home loan to help them arrange the money needed to buy a home.

A home loan is a loan availed of to buy, construct, reconstruct, or refurbish a residential property. There are many lenders in the market that offer this facility. Home loans are sanctioned usually for a period of 20 to 30 years. Thus, the risk of default is much higher in the case of home loans than in the case of short-term loans, such as a car loan or a personal loan. To make up for this risk involved in lending money to borrowers, lenders charge interest on home loans. However, since home loans are the cheapest of all loans, the rate of interest on these loans tends to be on the lower side. Home loans are repaid in the form of EMIs and each EMI is divided into two parts: one part covers the interest component of the loan and the other part goes towards the repayment of the principal component. During the initial years, the interest component of the EMI is much higher than the principal component. 

Now that we have established the basics of a home loan, let us dive deep and analyze whether availing of a home loan and buying one's own home is really a better financial decision than simply renting.

Renting: Pros and Cons

Pros

If you are renting a place, you know exactly how much will go towards covering the rent, and therefore, budget planning becomes easier.

If you realize that your current rent is beyond your budget, you can always change places and move to another place, the rent of which you can comfortably afford.

Maintaining a home is important. A lot of money goes into home maintenance. When you are renting a place, you need not worry about home maintenance. It's the owner's duty.

Cons

The biggest problem with renting a home is that whatever money you are spending goes towards covering the rent. So, you spend money but do not build equity.

When you are on rent, you cannot do your home the way you like. All tenants have to adhere to the rules and regulations laid down by the property owner or they face eviction.

When you are on rent, until and unless you are living in a rent-controlled building, your landlord can choose to increase the rent whenever they want and there is nothing you can do about it.

You can also be asked to leave the property at short notice. If that happens, finding another home in a short span becomes quite difficult and a big hassle.

Now that we are familiar with the pros and cons of renting, let us look into the pros and cons of availing of a home loan to buy a home. 

Home Loan: Pros and Cons 

Pros

The biggest benefit of availing of a home loan to build a home is that even if you have to deal with the burden of EMIs, your money is going towards building an asset that will bring returns over time. Buying a home, in India, is therefore seen as an investment opportunity. Further, a home brings mental peace and social security.

When you avail of a home to buy your own home, you can do your home the way you like. In other words, your home will be a place that you would like to come back to again and again. 

When you are a homeowner, you need not worry about eviction. The property belongs to you and one can throw you out of it. 

Borrowers who avail of a home loan have to pay a lot in interest as home loans are long-term loans. However, home loans also come with home loan tax benefits, and by availing of these tax benefits, borrowers can save a lot of money in taxes each year.

Cons

Home loans must be availed of after proper planning. Further, borrowers must always borrow what they can easily repay as the inability to pay loan EMIs for an extended period of time can lead to one's lender selling their home for loan recovery. 

Home loans are long-term loans and therefore, even with a low rate of interest, the final interest payout turns out to be a hefty amount. Thus, borrowers must try and keep their loan tenor as short as possible as this helps one reduce the total interest outgo and the cost of borrowing the loan. 

From property tax to water tax to maintenance cost, homeowners have to deal with many additional costs and must be prepared for them. 

Final Words 

In conclusion, both renting and homeownership have their advantages and disadvantages. Between the two, it obviously makes more sense to buy a home because even if you have to deal with the burden of EMIs, you are spending money towards building an asset. However, it only makes sense to avail of a home loan and buy a home when you are convinced that you can afford the burden of EMIs and want to settle in one place for selling a home is no easy task. If you buy a home now and two years later, you decide to move to another city, selling your home may prove to be more difficult than you thought. Further, you may not even be able to sell it for the value you have imagined. So, buying a home is any day a better decision but it's a decision that one must avail of after careful planning.

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