# If you have 500 million dong, should you borrow to buy a house or use idle capital to invest?

The matter of using money to do what is right, to spend it for profit is always a topic that attracts a lot of people’s attention – especially when it is put on the scale to compare. Borrowing to buy a house or using leisure capital to invest is one of such controversial issues.

One side meets the needs of settlement, the other helps “money to make money” – any choice you want but the cash flow is limited, what to do?

First, to answer this question, we need to know about the family’s financial situation. The numbers of monthly income, savings, ability to pay are important points for you to compare options with each other.

1. Important parameters

* Example of your family A:

– Total monthly income: 50 million VND

– Saving capital: 500 million VND

– Want to buy a house: 2 billion VND

– Bank loan: 1.5 billion VND

– Home loan contract: 10 years

– Bank loan interest: assuming 10%/year (fixed)

To make the calculation simple, I let the home loan interest rate be fixed: 10%/year. Details about this fixed or floating loan you can read here to understand how to calculate and compare before deciding to buy a large property and take a long-term loan.

* With a capital of 500 million VND, friend A is considering choosing between:

– Continue to rent and invest 500 million in other channels;

– Or contribute to the house 2 billion and borrow the rest 1.5 billion from the bank.

Answering this question, I will compare the profitability of the two options for us to consider. But first, you need to know your financial ability, the amount to buy a house should not be more than 4 times the family/personal salary.

For example, annual salary 50 million x 12 = 600 million. 4x means you can buy 600 million x 4 = 2 billion 4 max.

The numbers of monthly income, savings, ability to pay are important points for you to compare options with each other.

2. Compare solutions

### Case 1: Borrowing to buy a house

The fixed interest rate of 10% for 10 years has shown that the value of friend A’s apartment is now 2 billion 756 million VND.

In addition, you also note that when buying a home, there will be a few additional fees:

– Personal income tax (The fee can be agreed that the taxpayer is the buyer or the seller) = 2% x the transfer price;

– Registration fee = 0.5% x area x price 1m2;

– Notarization fee = according to Circular No. 257/2016/BTC.

However, for your convenience, I have not included these fees in the example. Calculated on the total value of the house, the fee can account for 5-10%, depending on the area of ​​​​the house and the type of real estate. These fees when considering buying, you can ask the broker to detail the fees to ensure that you fully understand the items you need to pay.

Back to the content to buy or rent, I am comparing in terms of investment. Looking in the comparison table you will see:

+ If the value of your house A increases by 3% per year, the loan of 1 billion 5 in this case will not work because the value of the house is still lower than the total amount of money you have paid and borrowed from the bank. row.

If the home’s value increases by 5% per year, the home’s value begins to earn interest.

+ Accordingly, if the house price increases by 5%/year or more, the house of friend A’s family has started to be profitable over time.

The formula for calculating home interest:

Interest on home purchase = Total increase in home value after xx years – Home loan principal and interest

In this example, I also omitted inflation and price slippage so that you can approach this comparison very simply.

Comparison table to buy a house or use idle capital to invest.

### Case 2: Rent a house and use capital to invest

Renting is very popular with young families, as the rental fee is much better than the cost of the loan.

For a fair comparison, friend A’s family will rent a house with a selling value of 2 billion dong, the monthly rent is 12 million. A’s family will use 500 million VND of capital to invest.

Formula for calculating return on investment:

Return on investment = Total investment + compound interest after 10 years – rental cost after 10 years

Currently, the market has the following average profitability ratios in the following channels:

– Savings: interest rate of 5-6%/year;

– Bonds or certificates of deposit: interest rate 8-10%/year;

– Fund certificates: interest rate of 8-15%/year;

– Stocks: interest rate of 10-30%/year;

And unlike the case of buying a house, after 10 years the family will not own the house, but the family’s assets will be investment portfolios.

Note that when calculating your investment costs, you will need to include additional fees:

– Transaction, consulting, transfer, depository fees;

– Income tax on sale;

– Other service fees if any;

3. The important meanings when choosing

From the above information, when looking at the comparison table, we can decide what to do with the capital of 500 million.

If you are a good investor, investing with 20% return per year offers better returns than real estate’s 8% annual return.

Meanwhile, the rate of return of 8%/year, estimated to increase by 80% after 10 years, is a challenging figure for an apartment because it depends on the state of deterioration, living area, location… of any property. that estate. At the same time, if your family A decides to take out a home loan with a decreasing interest rate, in the first 5 years, your family A will pay principal and interest about 40% of their monthly income.

However, in addition to the investment aspect, a home is also a nest, a stable place for you to build a family and raise children, these things cannot be measured. Living in a rented house will also face obstacles such as constantly changing accommodation, rising rents, etc., affecting family life.

So, to know which is the best option, take the time to research and analyze it!

Hope you will soon own your own house!

* The article is supported by the advice of Ms. Mina Chung – Women’s community platform ambassador specializing in finance and career.

According to Lam Anh

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