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As soon as one starts one’s career or gets settled in life, a big question comes in every person’s mind – should one buy a house first or should one start investing the money in the right place? This is a dilemma that almost every working person goes through. It is generally believed in our society that one should secure one’s roof by taking a home loan as soon as possible, because paying EMI is better than paying rent.
On the other hand, today’s new generation and financial advisors believe that instead of tying themselves into a 20-25 year loan so early, it is more practical to build a large corpus (fund) initially through SIPs and other investment vehicles. Both options have their own solid advantages and some hidden disadvantages. Let us understand in very simple words which path will be right for you to choose according to your financial condition and mental peace.
Advantages and Challenges of Buying Your Own Home (EMI)
Benefits: Peace of mind and stable wealth
A house is not just a structure made of bricks and stones, but it also has the emotions and security of a family attached to it. People find it more logical to pay loan installments instead of paying rent to the landlord every month, because with time you become the real owner of that property. Additionally, real estate also has the advantage of increasing property prices in the long run. Especially after marriage, having your own home provides great mental peace for the stability of the family.
Challenges: Long-term financial pressure
Even though home gives you security, it also brings with it huge financial responsibilities. The tenure of home loan is usually 15 to 25 years. If a large part of your salary goes into EMIs every month, you will be left with very little money for other important tasks, children’s education or investing for your own future. Apart from this, while buying a house, not only EMI but also many big expenses like down payment, registry fees, monthly maintenance and interior designing become heavy on the pocket.
Benefits and freedom of investing through SIP
Advantages: The power of compounding and financial freedom
Through SIP (Systematic Investment Plan) you invest a fixed amount in mutual funds every month. its greatest magic is Compounding (earning interest on interest). If you start a disciplined SIP of Rs 10 to 20 thousand every month at an early age, then in the coming 15-20 years this amount can turn into a huge fund worth crores of rupees.
Another big advantage of investing is that you remain completely financially independent. If you have to change job for a better opportunity, start a new business or shift to another city, then you do not have to bear the stress of heavy EMIs.
Challenges: Rental expenses and lack of discipline
Doing SIP means that you will have to live in a rented house for a few more years, which many people consider a waste of money. Furthermore, the biggest challenge in investing is discipline; Many times people get nervous seeing the ups and downs in the market and stop their SIP midway, due to which they do not get the full benefit.
EMI vs SIP: A head to head fight
Understand the comparison of both the options from the table below to decide your preferences:
| Scale/Features | Home Loan EMI | Mutual Fund SIP |
| financial commitment | 15 to 25 years (long term commitment) | Completely flexible (increase or reduce the amount whenever you want) |
| Liquidity (availability of money) | Very low (it is difficult to sell the property immediately) | Too much (money in bank account in few days if needed) |
| means of return | Increase in property prices | Wealth creation through compounding |
| mental impact | Pride and social security of having your own roof | Big bank balance and financial freedom for the future |
| additional expenses | Down payment, tax, maintenance and insurance | Fund management fee only (expense ratio) |
What would be the right decision for you?
According to financial experts, there cannot be a definite answer to this question, because it completely depends on your current situation.
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When to go for EMI: If your job or business is completely stable, you have an emergency fund equal to 6 months of expenses, you have saved up the money for the down payment and you plan to stay in the same city for the next several years, then buying a house is the right decision.
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When to go for SIP: If you are early in your career, not sure about your future plans, have low savings and do not have major family responsibilities, then it makes more sense to do SIP aggressively initially for 3 to 5 years. Once you have a large fund ready, you can easily buy your dream home without taking a huge loan.
