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buying a home vs renting a home in Mumbai

Buying a home versus renting a home is a common dilemma for many individuals, especially in a city like Mumbai where the real estate prices are high. In this analysis, we will compare the financial implications of buying a home versus renting a home in Mumbai over a period of 20 years.

Assumptions:

  • The cost of the house is INR 1.5 crore.
  • The down payment is 20% (INR 30 lakh), and the remaining amount is financed at an interest rate of 7.5% for 20 years.
  • The rent of the house is INR 50,000 per month, and it increases by 5% every year.
  • The maintenance cost for the owned property is INR 10,000 per month, and it increases by 5% every year.
  • The expected return on investment is 8%.

Buying a home: The total cost of the house is INR 1.5 crore. The down payment is INR 30 lakh, and the remaining INR 1.2 crore is financed at an interest rate of 7.5% for 20 years. The EMI for this loan is INR 97,883. Over 20 years, the total amount paid towards the principal and interest is INR 2.35 crore. Additionally, the maintenance cost for the property is INR 10,000 per month, which increases by 5% every year. The total maintenance cost for 20 years is INR 55.5 lakh. Assuming a return on investment of 8%, the net present value (NPV) of the total cost of buying the property is INR 2.42 crore.

Renting a home: The rent of the house is INR 50,000 per month, which increases by 5% every year. Over 20 years, the total rent paid is INR 3.73 crore. Assuming a return on investment of 8%, the NPV of the total rent paid is INR 2.17 crore.

Conclusion: From the above analysis, it is evident that renting a home is a more cost-effective option compared to buying a home in Mumbai, assuming the above-mentioned assumptions. The NPV of the total cost of buying a property is INR 2.42 crore, while the NPV of the total rent paid over 20 years is INR 2.17 crore. However, this analysis does not take into consideration the emotional attachment and the pride of ownership associated with owning a property.

It is important to note that real estate prices and rental rates are subject to market fluctuations, and individual circumstances may differ. It is recommended to consult a financial advisor before making any major financial decisions.