Friday, March 21, 2008

Should we or Should we not?

I was having a discussion with my friends and cousins, "whether we should build a house or we should live all our life in a rented house?" there were quite interesting facts shared.

Well I was talking to few friends and trying to figure out how much would a guy ultimately pay to the bank if he took a loan at the end of the loan term.
Loan Amount : Rs 4,000,000
Loan Tenor : 15 years
Loan Interest: 12 % per annum
So at the end of 15 years how much would the borrower have paid to the bank in total? And the magic number is : Rs 8,641,260.00
So I kind of send few mails to my friends and cousins asking them if it is advisable to buy a house or live in a rented place for ever. Because at the end why should I give Rs 4,641,260.00 more to anyone that what he has given me? Because of time value of money? Ok I am ready to pay 1,000,000.00 more but not that huge a number.

This is what my brother had to say

But it all depends on what you are left with after the loan is paid off... right? For tangible assets, the value of a loan can be easily quantified.

Much more difficult in case of intangible assets... the value of which can only be assessed by the person taking the loan, and can sometimes involve very emotional aspects of one's decision making process...

There are a whole bunch of things you can do with the asset. Pass it on to your kids, give it to your loved ones, or donate it to charity, etc. etc. Any one of these would be better than being out of Rs 3,444,000 and having nothing to show for it.

I agree that having money (or assets) does not make one happy, but I have found that having money does not make one sad either. He He He He He He.

Absolutely Correct...

One of my very close friends said this

If you are paying more than you actually took the loan for .. you also make a profit when you sell the place ... and more over .. its something which you can call your own.... (very practical answer)
you cant expect to be living in same rented house for 10-15 years.. can you ? (NO I dont want to live in the same house for ever)
you can't buy furniture suited to the place... you won't get to know the neighbors... (Hmmm)
you can't modify it according to your tastes and likes... example, putting permanent fixtures.... (Hmmm Correct)
going by the way things are in India .. you never know when the मकान मालीक is going to throw you out ... (Hmmm Sahi)

Another of my friends told me how much does it cost to live in a rented house for 20 years.

If you paying Rs 10,000 as rent every month, then after 10 years you would be paying, the magic figure is (12 * 10,000) * 10 years = Rs1,200,000. Plus u can add compound interest of 8.5 % ascending as the amount grows. I guess u will end paying same amount which u pay to bank after taking loan for Rs 2,000,000..

I guess he is absolutely correct.

I guess we all should aim to buy a house but It took some help from my family and friends to convince me, why we should buy a house. Its not that I didnt know these things but its like "DO I REALLY NEED TO BUY A HOUSE FOR MYSELF AND MY FAMILY?" I am convinced.

This post would help everyone for people who are undecided on the point whether we should buy a house or we should live in a rented apartment.


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