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Should I Get Another Housing Loan or Use My PF? 32-Year-Old with 68 Lakh Investments Seeks Advice

Ramalingam

Ramalingam Kalirajan  |8317 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 27, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more
Asked by Anonymous - Jul 21, 2024Hindi
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I am 32 years old. I am earning 1.5 Lakh per month. I have 26 Lakh in PF, 12 lakh in Mutual Fund, 2 Lakh in NPS, 8 Lakh worth gold (90 % in jwellery). I have recently bought one residencial property with housing loan of 30 Lakh for 10 years. I just bought one more residential property worth 28 Lakh. Shall i go with one more housing loan or i pay for it from PF as then i wont have any backup...my pension is covered by government.

Ans: Current Financial Position
Age: 32 years old
Monthly Income: Rs. 1.5 lakhs
Provident Fund (PF): Rs. 26 lakhs
Mutual Fund Investments: Rs. 12 lakhs
National Pension System (NPS): Rs. 2 lakhs
Gold: Rs. 8 lakhs (90% in jewellery)
Housing Loan: Rs. 30 lakhs for 10 years (recently bought residential property)
New Residential Property: Rs. 28 lakhs
Government Pension: Covered
Key Considerations
Financial Backup

Using your PF to pay for the property will deplete your emergency funds.
Keeping some reserves is crucial for unforeseen expenses.
Housing Loan

Taking another loan means additional EMI, which will affect your monthly cash flow.
Evaluate your repayment capacity considering your current loan.
Investment Strategy

Balance between liquidity, growth, and safety.
Diversify investments to manage risk.
Evaluating Options
Using Provident Fund
Advantages:

No additional EMI burden.
Property is fully paid off.
Disadvantages:

Depletes emergency funds.
Reduces long-term retirement corpus.
Taking Another Housing Loan
Advantages:

Keeps PF intact for emergencies.
Leverages debt to acquire property.
Disadvantages:

Additional EMI burden.
Impact on monthly cash flow.
Recommendations
Maintain Financial Backup
Emergency Fund: Always keep at least 6 months of expenses in liquid form.
PF as Backup: Your PF acts as a safety net for long-term needs.
Evaluate Loan Affordability
EMI Impact: Ensure your total EMI does not exceed 40% of your monthly income.
Current EMI: Calculate the impact of the new loan on your existing financial commitments.
Optimal Use of PF
Partial Withdrawal: Consider partial withdrawal from PF if necessary. Keep a portion intact for emergencies.
Diversified Investments: Ensure your PF is balanced with other investments.
Investment in Mutual Funds
Growth Potential: Continue investing in mutual funds for long-term growth.
Review Portfolio: Regularly review and adjust your mutual fund portfolio based on performance and goals.
National Pension System (NPS)
Retirement Savings: Continue contributing to NPS for additional retirement benefits.
Tax Benefits: Utilize tax benefits under Section 80C and 80CCD(1B).
Gold as an Asset
Diversification: Gold provides a hedge against inflation and currency risk.
Liquidity: Gold in jewellery form is less liquid. Consider converting some to more liquid forms like ETFs.
Final Insights
Balancing liquidity and growth is key. Maintain your PF as a financial backup. Evaluate your capacity for an additional housing loan. Continue investing in mutual funds and NPS for long-term growth. Ensure your investment portfolio is diversified to manage risks effectively.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8317 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 09, 2024

Asked by Anonymous - Apr 25, 2024Hindi
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I am 52 years and currently me and wife earn around a crore per annum. Our PF and NPS savings are currently at around 2 crores. I expect to work for around 4 more years after which both of us want to retire. My monthly expense is currently around 1.5 to 2 lakhs per month and I would like to maintain the same kind of lifestyle. I have a rental income of around 65k per month and have savings & property that can take care of my children's marriages. I have an own house to stay. Over and above this I have around 60 lakhs in stocks/mutual funds and ULIP, 50 lakhs of bank balance and 70 lakhs of loan. Unable to decide what to do with the housing loan and also for pension
Ans: It sounds like you've built a solid financial foundation, and you're in a good position to plan for your retirement. Let's address your concerns about your housing loan and pension.

Regarding your housing loan of 70 lakhs, it's essential to evaluate the interest rate and the impact on your overall financial health. If the interest rate is relatively low, and you have the means to continue servicing the loan comfortably, you might consider keeping it until its term ends. However, if the interest rate is high or if you prefer to reduce debt before retirement, you could explore options like prepaying the loan partially or fully, depending on your financial situation and goals.

As for pension planning, since you're looking to retire in about four years, it's crucial to ensure you have a reliable source of income to sustain your lifestyle post-retirement. With your PF and NPS savings totaling around 2 crores, you already have a significant retirement corpus. Consider consulting with a Certified Financial Planner to optimize your investment strategy and maximize your retirement income.

Given your rental income, savings, and investments, you're in a good position to maintain your current lifestyle even after retirement. However, it's essential to have a diversified retirement income strategy that includes a mix of annuities, systematic withdrawal plans, and other investment vehicles to ensure financial security in your golden years.

Continuously reassess your financial plan as you approach retirement to make any necessary adjustments based on changing circumstances and goals. With careful planning and prudent decision-making, you can enjoy a comfortable and fulfilling retirement ahead.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |8317 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 18, 2024

Asked by Anonymous - Jul 07, 2024Hindi
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I am living on rent, and now I have searched and seen a residential property that is flat(constructed in 2007) at ground floor in a society, which is for sale and may be cost up from 18 L to 22 L final talk not done, within two months my matured savings would be 11 lakh also having a pf balance of 1.5 to 2 lakh and ornaments of about 10 Lakh I have two daughters age19 years and 14 years If I do not disturb the gold and pf balance I would be in need of home loan of about 10-12 lakh So, is it wise to take home loan Alongwith SIP of amounting 10 percent of emi only Or if I finish all the savings and asset I would required no loan and will opt to purchase a gold of 15000 every month My take home salary is 39500 Please suggest which one of both is better Or if you have any other suggestion please guide
Ans: Buying the Property: Assessing Your Options
You are considering purchasing a flat priced between Rs 18-22 lakh. You have Rs 11 lakh maturing soon and Rs 1.5-2 lakh in PF balance. You also have gold worth Rs 10 lakh. You are contemplating whether to take a home loan of Rs 10-12 lakh or use your savings and assets.

Evaluating the Home Loan Option
Pros of Taking a Home Loan:

Liquidity: You maintain liquidity by not using all your savings.
Tax Benefits: Home loans offer tax benefits under Sections 80C and 24(b).
SIP Continuation: You can continue your SIPs, growing your investments over time.
Cons of Taking a Home Loan:

EMI Burden: Monthly EMIs can strain your take-home salary of Rs 39,500.
Interest Cost: You pay interest on the loan, increasing the total cost of the property.
Financial Stress: Managing EMIs and other expenses might be challenging.
Evaluating Using Savings and Assets
Pros of Using Savings and Assets:

Debt-Free: No loan means no EMI burden.
Interest Savings: You save on interest costs.
Financial Freedom: No monthly EMI, allowing better cash flow management.
Cons of Using Savings and Assets:

Reduced Liquidity: Using all savings and assets reduces your emergency fund.
No SIPs: Stopping SIPs might impact long-term wealth creation.
No Tax Benefits: You miss out on home loan tax benefits.
Analyzing Monthly Cash Flow
Your take-home salary is Rs 39,500. Let's analyze the cash flow for both options:

With Home Loan:

EMI (Assumed): Rs 10,000 (approx)
SIP (10% of EMI): Rs 1,000
Total Outflow: Rs 11,000
Remaining cash for expenses and savings: Rs 28,500

Without Home Loan:

Gold Purchase: Rs 15,000 per month
No EMI: Rs 0
SIP Continuation: Assuming Rs 1,000 (for continuity)
Remaining cash for expenses and savings: Rs 23,500

Considering the Future
Children's Education: Your daughters are 19 and 14. Higher education costs might rise soon. Ensure you have funds for their education.
Emergency Fund: Maintain an emergency fund for unforeseen expenses.
Retirement Planning: Continue to invest for your retirement.
Professional Insights and Recommendations
Balanced Approach: Consider a mix of both options. Use part of your savings and take a smaller home loan. This keeps some liquidity while reducing loan burden.
Prioritize SIPs: Ensure you continue your SIPs. SIPs are crucial for long-term wealth creation.
Gold Investment: Buying gold every month can diversify your portfolio. However, consider market fluctuations.
Emergency Fund: Always maintain an emergency fund. Avoid exhausting all savings on the property.
Tax Benefits: Utilize home loan tax benefits if you opt for a loan. It can reduce your taxable income.
Final Insights
Buying a property is a significant decision. Evaluate all aspects before proceeding. Consider both immediate and future financial needs. Balancing liquidity, tax benefits, and long-term investments is key. Make a decision that aligns with your financial goals and stability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |8317 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jan 06, 2025

Money
Hi Mam, I need your prompt advice as i need to take decision on the same. I am 55 years and have 5-6 Years in retirement. Post retirement have planning and secure. Now coming to the point that i am staying a capital of state where i pay house rent Rs.40000/- PM. My take homme monthly salary is approx 6 Lacs. My organization have policy to pay 50% interest subsidy on interest of Housing loan. I am planning to purchase a flat value 1.25 Cr in which 80 Lacs Banks are ready to give for next 12 Years . monthly EMI will be 85-90 K and out of which approx 28K will be subsidy and 40K my rent and 5K saving of IT in Housing loan interest . Ideally it will cost to me approx. 15-20 K Per month additionally . After retirement i will sell the flat and square off my balance home loan. Please suggest is it worth of taking ....or i should continue to pay House rent and add 20 K liability in Mutual Fund contribution . Urgent reply please
Ans: You are evaluating whether to buy a flat worth Rs. 1.25 crore or continue renting. Let us assess this situation considering financial, practical, and retirement planning aspects.

 

Financial Considerations
1. Monthly Cost Comparison

Current rent is Rs. 40,000 per month.
EMI for the home loan is Rs. 85,000-90,000 per month.
Subsidy from your organisation reduces the EMI cost by Rs. 28,000.
Tax savings on housing loan interest further reduce the cost by Rs. 5,000.
Net additional cost to you is Rs. 15,000-20,000 per month.
 

2. Opportunity Cost of Down Payment

Buying the flat requires Rs. 45 lakh as a down payment (including registration).
Investing this amount in mutual funds for 5-6 years can yield higher returns.
Evaluate if your current mutual fund contributions can bridge this gap later.
 

3. Post-Retirement Loan Liability

Your home loan tenure is 12 years.
After retirement, loan repayments will depend on other income sources.
Selling the flat to clear the loan may not always fetch expected value.
 

4. Rent vs. Ownership Costs

Owning a flat involves maintenance, property tax, and repair costs.
Consider if these costs are affordable post-retirement.
Renting offers flexibility and avoids these additional expenses.
 

Lifestyle and Practical Aspects
1. Stability vs. Flexibility

Owning a flat provides stability and security of residence.
Renting offers flexibility to relocate post-retirement if needed.
 

2. Emotional Value of Owning a Home

Buying a home can give emotional satisfaction and a sense of achievement.
Ensure this decision aligns with your long-term financial health.
 

3. Rental Yield Analysis

Flats often have low rental yields compared to their cost.
You may not earn substantial rental income after clearing the loan.
 

Retirement Planning
1. Impact on Retirement Corpus

Redirecting Rs. 20,000 to mutual funds can grow significantly over 6 years.
This additional corpus can support your post-retirement lifestyle.
 

2. Liquidity Needs Post-Retirement

Flats are illiquid assets and may take time to sell when needed.
Liquid investments ensure easy access to funds during emergencies.
 

3. Alternate Strategies

Continuing to rent and investing in mutual funds may create better retirement wealth.
Combine equity and debt funds for an optimal mix of growth and stability.
 

Tax and Subsidy Considerations
1. Housing Loan Subsidy

The 50% interest subsidy reduces your effective EMI significantly.
This benefit reduces the immediate cost of buying the flat.
 

2. Tax Savings on Interest

Tax benefits under Section 24 further reduce the financial burden.
These savings must be factored into your overall cost analysis.
 

Final Insights
Buying a flat offers stability but increases financial obligations. Continuing to rent allows flexibility and creates additional retirement wealth. Evaluate the long-term implications on your retirement corpus before deciding. Align this decision with your financial goals and retirement needs. Engage with a Certified Financial Planner to create a detailed retirement plan and optimise your investments.

 

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

Ramalingam

Ramalingam Kalirajan  |8317 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Apr 04, 2025

Asked by Anonymous - Apr 04, 2025Hindi
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Money
i need guidance. i am 63 yrs with housing loan of 70lakh. Only asset is a house with market value 2 crore. i have 2 daughters to be married. I need to retire and start my practice as doctor. Guie me to a investment to live with 30000 monthly and to buy a house 0f 8 lakhs after disposing the property/ Presently earning 1.5L per month. pl suggest. shud i sell the property
Ans: Your situation requires a well-thought-out financial strategy. You have a housing loan of Rs 70 lakh, a house worth Rs 2 crore, and a need for Rs 30,000 per month after retirement. Additionally, you plan to buy a house worth Rs 8 lakh and have two daughters to be married. Below is a structured approach to help you achieve financial stability.

Selling the Property – A Necessary Step?
Selling your house is a practical option. Your outstanding loan is Rs 70 lakh, and the house is worth Rs 2 crore.

After repaying the loan, you will have Rs 1.3 crore. This can be used for investments and future expenses.

If you continue living in this house, EMIs will be a burden. Selling will free you from debt and give you financial stability.

Consider renting a home instead of buying again. This will keep more money available for investments.

Buying a House for Rs 8 Lakh
If you want to buy a smaller house for Rs 8 lakh, use only a small portion of your funds.

Avoid taking another loan. Pay for the house in full from the sale proceeds.

Ensure the house is in a location with good facilities, medical access, and safety.

Creating an Investment Plan for Rs 1.3 Crore
After selling your house and clearing the loan, you will need an investment plan.

Keep Rs 10-15 lakh in a bank FD or liquid mutual funds. This will act as an emergency fund.

Invest Rs 30-40 lakh in debt mutual funds. These provide stability and liquidity.

Invest Rs 50 lakh in equity mutual funds for long-term wealth growth. Use regular plans with a Certified Financial Planner.

Keep Rs 10-15 lakh in a balanced fund for moderate returns with lower risk.

Generating Rs 30,000 Monthly Income
Debt mutual funds can provide a stable withdrawal option. Withdraw systematically for monthly expenses.

Use a mix of dividend and growth options. This ensures you get both regular income and capital appreciation.

Equity funds will provide growth, helping you sustain your money for 20-25 years.

Managing Daughters’ Marriage Expenses
If you need Rs 20-30 lakh for each daughter’s wedding, set aside Rs 40-60 lakh from the sale proceeds.

Invest this amount in a mix of debt and equity funds. This will help you reach your goal in a few years.

Avoid withdrawing from your retirement corpus for wedding expenses.

Starting Your Medical Practice
If you plan to start a medical practice, keep Rs 10-20 lakh for setting it up.

Avoid heavy investments in infrastructure initially. Work from an existing clinic or shared space.

Ensure you have medical indemnity insurance to protect yourself.

Final Insights
Selling your house will give you financial freedom and remove loan pressure.

Invest wisely to generate a steady monthly income and secure your daughters' futures.

Do not invest in real estate again. Keep your funds liquid and flexible.

Work with a Certified Financial Planner to review your investments regularly.

Focus on financial security rather than high-risk investments.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment

..Read more

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