Home loan EMI or Mutual Funds SIP? You should have better one.

Great Bernard Shaw said ” Fools Build Houses and the Wise Men Live in them!”. Recently many financial advisers advise on buying home property. Considering buying home by home loan and return on that investment, it is not considered best in India. Real emotional pressure start after buying overpriced “dream house” and no fun living EMI to EMI.

An investment is an asset that is purchased with the expectation and purpose of long term gain.

Buying a apartment looks like bad investment today because in major cities houses are much expensive. Most of the builders houses are lying empty no one is their to take them. There are more than 30,000 apartments are unoccupied in Bangalore. After buying apartment, maintenance cost needs to be paid for the dream home. Maintenance cost easily comes around 4,000 rupees to 8,000 rupees. With huge EMI, maintenance cost needs to be paid for the apartment. So your monthly expenses for the home is EMI + maintenance cost.

Monthly expenses for the home is EMI + Maintenance Cost + Property Tax

In case you are buying for investment, consider the stamp duty as well in the home value. There is about 10% stamp duty (entry load of an investment) and other associated taxes on the ownership. Compared to gold and stocks, this is huge. when you sell it back, you wont get that part back anyway. If you sell the house in 30% appreciation after three years, you will get only 18% of profit in 3 years because you paid 10% in duties.

Buying real estate can be an investment or for yourself to stay in your dream home. Buying a home for yourself and your family to live in is never an investment; for it’s purpose is to provide quality housing to your loved ones. As such, you should have no reasonable expectation of gains from your home. Buying a home can be a good investment if you properly select one, whether it be a primary residence or a true investment property.

You should plan your other long term investments like retirement planning, insurance coverage,emergency fund etc. So,make yourself financially secure, before buying a home.

In case you are planning to buy property for 70 Lakhs rupees,

Base payment 15 % = 10.5L (this will rip you off with all your previous savings)
Loan amount = 59.5 L
EMI per month Rs.59,000 per month
Maintenance charges approx 36K Rs per year = 3000 Rs per month
Average property Tax per month = 1000-1500 Rs per month

Total EMI comes to approx Rs 65,000 per month for next 20 years. Hence, total cost of ownership for 20 years = 65,000 X 20 X 12 months + 10.5 L = 1, 66, 50,000 (approx 1.67 crore)

You are a disciplined investor who makes careful, intelligent decisions, there is probably no benefit of owning a house compared to renting.

Make sure your home loan EMI is not beyond 45% of your monthly income. 30% – 35% is optimal, not beyond 45% of your monthly income.

the realization that ‘your’ home isn’t really yourself until you pay 60% of loan amount.

You do all your mathematics and finally calculated that renting would be better than buying. But it does not mean that you can spend all your money. In personal finance, renting is better option only if you invest possible home loan EMI to Mutual funds SIP for longer term. If you are not disciplined investor, better go with home loan option. At least you would have one home is better than having none.

Renting is better option only you start your mutual funds SIP EQUALLY for home loan EMI.

Now consider that you planning to move to rented property. Now rent for the home 20,000 rupees and remaining 45,000 rupees you start your mutual funds investment with equity and index mutual funds for longer term. It would provide 6 crores after 20 years.