Buying house vs renting: Should you consider two home loan EMIs simultaneously?

Aryan and Pooja have moved to Delhi after living in Pune for almost eight years. They have their own house in Pune, bought with a housing loan, and have eight more years to repay. Their daughter is 22 and is planning to pursue an MBA degree. The family shifted due to Aryan’s promotion and now plans to buy a house in Delhi too. They think that instead of paying rent, they should take another loan and pay EMI to build another asset. What could be the implications of going forward with this plan?

Paying two EMIs requires a higher level of income and savings. If they don’t have these, they will end up using costly personal and credit card loans to meet any short-term needs. They will save less after paying two EMIs, which will reduce their ability to invest in other assets. Their portfolio will, thus, become more inflexible, with two large, but illiquid, assets

Raising money for their daughter’s education and marriage will become tougher. It may seem better to build an asset instead of paying rent, but the two are not comparable. Rent is not more than 3-4% of property value in a city like Delhi, while home loan interest can be as high as 11%. They will stretch their finances to build an asset, which is tough to sell or earn an income from. The appreciation may be of little actual use to the family. Hence, it might be wiser to continue paying rent in the new city or sell the property in Pune to buy a new one in Delhi


Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.