Renting vs Purchase using Home Loan?

We understand the dire confusion regarding this evergreen question, and here we are trying to solve this using few calculation.

Renting vs Buying a Home with a Loan: A 12-Year Financial Comparison

When faced with the decision of renting or buying a house, the choice isn’t just emotional—it’s deeply financial. Let’s analyze a real-world case comparing both options over a 12-year horizon using data from a ₹1 crore home scenario.

 

The Basics

Parameter	Value
Property Value	₹1 crore
Loan Amount (75% LTV)	₹75 lakhs
Registry + Misc Costs	₹7 lakhs
Total Purchase Cost	₹1.07 crore
Minimum Own Contribution	₹32 lakhs
EMI for ₹75 lakh Loan	₹56,000/month (approx)
Assumed Home Loan Tenure	12 years
Assumed Return on Investment (for comparison)	12% p.a.
Assumed Rent Growth	6% every 11 months
Assumed House Value Growth	12% p.a.

Scenario 1: 

Staying on Rent and investing the remaining fund

In this case, the person:

• Pays a starting rent of ₹25,000 per month (usually rental yield of residential accommodation is around 2.5% of property value).

• Increases rent by 6% every 11 months.

• Invests the ₹32 lakhs (own contribution) in an index fund with 12% annual return.

• Also invests the difference in EMI vs rent (~₹31,000/month) in a SIP at 12% return.

Rent Scenario Financials

Description	Amount
Total Rent Paid (12 yrs)	₹51.93 lakhs
Returns from ₹32L @ 12% p.a.	₹124.67 lakhs
SIP Returns from ₹31k/month	₹92.43 lakhs
Total Return	₹165.17 lakhs
Home Ownership?	None

Scenario 2: 

Buying the House with a Loan

In this scenario, the buyer:

• Pays ₹56,000/month EMI for 12 years.

• Owns the house at the end of 12 years.

• Enjoys appreciation of property at 12% CAGR.

Buying Scenario Financials

Description	Amount
Total EMI Paid (12 yrs)	₹91.26 lakhs
Principal Left (If Not Fully Paid)	₹44.63 lakhs
House Value After 12 Years	₹389.60 lakhs
Total Return (Appreciated Value - Principal Left)	₹253.67 lakhs

Summary Comparison

Metric	Renting	Buying
Total Outflow (Rent/EMI)	₹51.9L	₹91.3L
Total Value Created	₹165.2L	₹253.7L
Net Wealth Created	Less by ₹88.5L	Higher by ₹88.5L
Home Ownership	None	Yes

Key Takeaways

• Investing instead of buying can generate substantial returns—but you don’t own a home.

• Buying a house with a loan offers long-term asset creation through capital appreciation.

• Renting makes sense short-term, especially if you can aggressively invest the surplus.

• But buying builds equity—and the psychological security of a home is priceless.

Final Verdict

If your goal is pure financial return, renting + smart investing can compete—but buying wins in this scenario due to property appreciation.

However, if you seek ownership, stability, and long-term asset value, buying a house—even with a loan—may offer superior value over time.