EMI-funded home: way better than what finfluencers claim

When Finance Minister Nirmala Sitharaman announced the big tax rebate in her 2025–26 Union Budget, the new tax regime appeared more attractive for most taxpayers. A tax-free slab of up to ₹12.75 lakh, regardless of how you spend or invest, made traditional tax-saving instruments look less relevant. The tax benefits of a home loan seemed less meaningful, and a loan at 8.5 per cent began to look expensive.

So, was borrowing a mistake? Are renters better off? Let’s find out by examining six scenarios. Before getting into the details, here are the assumptions used:

Home price: ₹1 crore, growing at 8% annually - ₹4.66 crore in 20 years
Home loan: ₹75 lakh at 8.50% - EMI ₹65,087 + ₹25 lakh down payment
Annual rent: 4.50% of market value - grows at 8% annually
Stock returns: 12% annually

Scenario 1: Cannot afford EMI or down payment
In this case, renting is the only option. Monthly rent starts at ₹37,500. Initially, rent is lower than EMI, but it overtakes EMI by the ninth year. By year 21, rent rises to ₹1.75 lakh per month.

Total rent paid by then would be around ₹2.01 crore, roughly double the original home price. Meanwhile, the borrower owns an asset, while the renter is left with no asset and a rising rent burden.

Scenario 2: Buys the home with loan and down payment
The borrower pays 240 EMIs over 20 years, totalling ₹1.56 crore. By year 21, she owns the house outright, with no rent or EMI to pay.

At first glance, paying 56% more than the home price seems high. But inflation reduces the real burden of future EMIs. Also, while the full property value grows at 8%, only the reducing loan balance attracts 8.5% interest. Over time, the loan shrinks and the asset grows, making this a reasonable deal.

Scenario 3: Can afford EMI but chooses to rent and invest
Here, the renter invests the down payment and EMI (minus rent) in stocks. But by year nine, rent exceeds EMI, leaving nothing to invest. Later, rent has to be paid by withdrawing from the stock portfolio.

By year 20, the renter has a ₹2.85 crore portfolio but faces ₹1.75 lakh monthly rent. From year 33, the portfolio starts depleting as rent outpaces returns.

This scenario also assumes steady 12% returns, ignores capital gains tax, and requires strict discipline. Market volatility could force withdrawals at the wrong time, making this strategy risky.

Scenario 4: Buys home outright (no loan)
Here, the buyer purchases the house with ₹1 crore upfront. There is no EMI and no rent.

The individual owns a solid, appreciating asset from day one, valued at ₹4.66 crore in 20 years. There is complete financial certainty, no exposure to interest rate risk, and peace of mind from the start.

This is the lowest-risk scenario, though it locks in a large amount of capital in real estate.

Scenario 5: Invests ₹1 crore in stocks and rents
In this case, the individual invests the entire ₹1 crore in stocks and pays rent by withdrawing from the portfolio.

By year 20, the portfolio grows to about ₹4.04 crore, compared to the home value of ₹4.66 crore. Here, stock returns are generally sufficient to cover rent, unlike in Scenario 3.

However, risks remain. Market volatility, capital gains tax, and the need for financial discipline still apply. Even temporary downturns could affect withdrawals. This strategy offers flexibility and liquidity, but comes with uncertainty over long periods. It suits only those comfortable with sustained risk.

Scenario 6: Buys home with loan and also invests
Here, the buyer uses ₹25 lakh as down payment, takes a ₹75 lakh loan, and invests another ₹75 lakh in stocks. EMIs are paid from the stock portfolio.

By year 21, the individual owns a ₹4.66 crore home and retains a stock portfolio of about ₹1.6 crore.

This scenario creates the highest wealth among all, but involves moderate risk. It sits between the safety of owning a home outright and the volatility of full equity exposure.

The takeaways

If you can only afford rent, consider a lower-priced home where EMI is manageable, or work towards increasing income.

If you can afford a home, the choice depends on your risk tolerance.

If you can afford both down payment and EMI, buying a home remains a strong option.

The assumptions used here are realistic for current Indian conditions, though not fixed. They can serve as a framework even if rates change.

What has not been considered? Renters may need to relocate. Owners bear maintenance and taxes. Stock investors have liquidity advantages. Property and stock prices may stagnate.

Even without these factors, the overall conclusion broadly holds.