One of the SILLIEST things I see people doing nowadays once they get a decent job is to buy a house. That too by taking a housing loan for more than 50% of the property value. Many times even higher.
Buying a home when we have the money to pay upfront is better – except for the astronomical land values and the hassles of shared ownership in apartments. (An own house still creates inflexible lifestyles and cripples our freedom, but that’s beyond this topic.)
But why take a huge loan for a very long term (10-25 years?) that too at a floating rate of interest is BEYOND ME.
If you analyze the total value you’d be paying for the house, it would be a minimum of 2-3 times the loan value. Minimum. The housing loan provider keeps increasing the rate of interest and your loan tenure keeps getting longer!
So, in effect, you’d be paying rent to the banks instead of paying the house owner.
Instead, if you just rent a house, you can keep changing houses and even cities/countries as you please. You never know where your job might take you next, or where you might want to settle down after a few years.
You can increase/decrease rental value as per your affordability and life preferences. Majority of your savings are not locked down by EMIs, so you can even invest in riskier but high growth avenues like stocks or a new business.
But when you buy a 3-bedroom house when your family comprises of just 2 or 3 people, it is not only a waste of space + maintenance hassle but also results in a huge financial strain at a time when that money can be better invested elsewhere – like education, travel, gadgets, etc.
I believe in having a lot of flexibility in life. Freedom to do what we want should not be crippled by loan sharks. That’s why I feel buying a house when you can’t afford it and when your intention is to just replace the rent with a much higher EMI is SILLY.
If you think that it’s OK to work hard and surrender your freedom in order to create a better life for your children, think again. In most cases, your children would continue to pay your EMIs and fight for who gets how much share in the property.