Rent a house

Conventional wisdom says paying rent is as good as throwing your money down the drain. For years now, sellers of home loans have told people how it’s always better to buy a house with the same money. Tax benefits, sense of ownership and freedom from landlords and brokers — builders cite ‘n’ number of reasons to sell that dream home to you.
But is this the right time to buy? Or should you hold back for now? ET Big Bucks does a realty check. HDFC recently hiked its fixed loan rates to 11%, while ICICI Bank, which already charges 11% on fixed loans, is likely to review rates again.
A borrower who takes a fixed rate home loan of Rs 10 lakh will have to shell out Rs 1,23,960 per annum for 20 years. The equated monthly instalment (EMI) comes to Rs 10,330 at an interest rate of 11% per annum. Add to that society charges, which are quite high in metros. Even in Mumbai’s suburbs like Borivali, maintenance costs go up to Rs 2,000-3,000 for a 1 BHK house. And if you add insurance costs to that, your total outgo is around Rs 15,000 per month.
Now, the basic question of whether to take a house on rent or buy a house can be answered by looking at the rental yields. The ratio of prices to rents is like a price-earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, the price of a house should reflect future benefits — either as rent or accrued rent in case of owned house. In the current scenario of property rates rising fast and rentals increasing slowly, the equilibrium seems to be disturbed.
Find more at Rent a House

Tags: rent house, home loan, icici personal loans, hdfc loan, fixed rate home loan, price-earnings ratio, property rate, accured rent