Govt Wants To Make Home Loan EMIs Cheaper Than Rent. Should You Buy, Then?

The government wants to bring down interest rates to a level where it becomes cheaper for people to pay equated monthly installments (EMIs) than paying monthly rent, Finance Minister Arun Jaitley said on April 4, a day on which the Governor Shaktikanta Das-led Reserve Bank of India (RBI) reduced repo rate by 25 basis points to bring it down to six per cent. Last rates were this low was exactly a year ago.

“When Atal Behari Vajpai was the prime minister, paying home loan EMIs was cheaper than paying rent. We need to take interest rate to that level,” Jaitely told Hindustan Times in an interview.

"Low interest rates will make borrowings cheaper, particularly for homebuyers, and boost consumer demand that will boost economic growth," Jaitley added.

For the uninitiated, repo rate is the rate at which the RBI lends money to the bank. Since cost of borrowing reduces for bank if repo rate is cut, they are expected to pass on the benefit to borrowers by slashing lending rates consequently—something they do not often do despite the central banks urging them to do so.

“Banks have a formulation where they do not do an immediate transmission. But, they do it over a period. So, we will have to wait for their decision,” the FM told media on Thursday.  

Does it really make sense to opt for EMI over rent?

One could also argue against the idea, based on several facts, but those who do want to buy a house would have enough reasons to encourage them to make a move at a time when interest rates are at record low.  

Let us give you seven reasons why you ought to buy a home now and say your rented accommodation goodbye:

1. You no more have to deal with a landlord. You own the asset yourself. Your own house alone can provide you with the utmost sense of privacy and freedom.
2. House ownership is a great teacher. It by default would instill in you a much greater sense of financial prudence.
3. If packing and repacking is not ideal because you now have a family to take care of, buying is what you ought to do without further ado.
4. Let us face it. Money payments towards home loans would almost always be much higher than monthly rents. But the fact that EMIs gradually earn you complete ownership of an asset should be reward enough for financial pressure you may be facing currently.
5. If need be you could rent part of the premises to earn rentals. No subletting rules stop you from doing that.
6. You are saving your children the trouble of starting all over again when they are adults. They would own the asset that you built.
7. It reflects brilliantly on your financial prudence. You can hardly believe the kind of respect you start to get once you become a property owner.