Rent or buy, as a cash comparison

Rent or buy is usually asked as a verdict. This page is the cash comparison. A house you live in is not a systematic investment plan. You pay for it every month whether the price rises or not.

The three thumbs a class uses

One personal-finance class uses three checks. They are thumbs, not a rule, and this site does not turn them into a pass or a fail.

• Price under five times a year of take-home. Take-home is what reaches the bank, not CTC.
• The EMI under 40 percent of that monthly take-home.
• Price divided by a year of rent under 15. Over 20, the same thumb treats buying as expensive next to renting. Between 15 and 20, it does not decide.

The price-to-income thumb ignores the interest rate. A cheap rate on a large loan can still use most of the salary. An expensive rate on a small loan can be fine. Read the EMI share as well.

Example, labeled as an example. A ₹40 lakh flat, ₹8 lakh down, 8.5 percent for 20 years, ₹2,000 a month of maintenance, rent of ₹18,000, take-home of ₹45,000. The loan is ₹32 lakh. The EMI is about ₹27,770. Owning costs about ₹29,770 a month before anything breaks. The EMI is about 62 percent of take-home. The price is about 7.4 times a year of take-home, and about 18.5 times a year of rent. On those three thumbs, this example is a stretch. Your city will not match it. The rent or buy calculator uses the numbers you type. It does not tell you to buy.

What the comparison leaves out

Tax. A home loan can change a tax return. The rule depends on the regime you are on, and on whether you live in the house. This page does not estimate that.

The price rising. If the only way the purchase works is that the house will be worth more, you are guessing. The calculator does not guess with you.

Stamp duty, registration, brokerage, the deposit a landlord already holds, and a repair in year one. Those are cash. They are not inside the EMI.

A job you might leave. An EMI does not resign when you do.

If you are still renting

Rent that already takes half of take-home is a budget problem this month. The budget article is that problem. Buying does not fix a month that has no cash left. An emergency fund still comes before a large loan.