Expecting a baby and confused about home loan options? I need advice!

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

Ans: Considering that you are already employee of a bank and can get better interest rates I recommend you go ahead and invest in the property.

Both of you are earning which is positive because even if major part of your income goes towards loan repayment you have back up for regular expenses and PPF/NPS/SSY investments.

Retain that 7 Lac as your emergency fund. Add to it so as to cover 8-10 months of expense coverage.

Surely you have group health cover but consider having a separate personal family floater cover which comes in handy during job switch and any unexpected medical need arises.

I am sure you both have adequate term life cover.

All the best!!

Ans: Your parents and wife are absolutely correct. Don't get carried away by social media chitchat. If you don't want to take a home loan, utilize your corpus of 4 Cr to buy that home(~2.5 Cr). Make up your mind. Then you can negotiate and come to common understanding with the developer.

Don't think that your asset base is decreasing but rather as transfer from "paper money" into "real asset", I mean real estate.

You can keep investing regularly over next 10-12 years to rebuild the corpus.

Not all startups are bootstrapped.

If you have a sound business proposition, VCs will finance you.

You may explore option of spouse working while you decide to enter into business with calculated risks so as to have stable income.

As you grow older the risk of lifestyle diseases kick in and at that stage you don't want to end up in a situation where you are unable to pay escalating rents on time.

Ans: Assessing Your Current Financial Situation
Your combined monthly income is Rs 1.13 lakh, a solid base for building assets.

You have three active loans with a current EMI of Rs 26,000, which includes loans for land purchase.

Monthly expenses are Rs 53,000, while Rs 19,000 is allocated to LIC premiums, and Rs 20,000 goes to NPS.

You plan to close all loans by September 2025, and currently focus all excess funds towards these debts.

Evaluating Loan Repayment Strategy
Your focus on loan repayment is a wise step. Clearing these high-interest loans will free up monthly cash flow.

Prioritise the SBI loan at 12.46% interest after closing the ICICI loan, as it has a higher rate than the LIC loan.

Once these loans are cleared, your EMI obligation will reduce, allowing you to redirect funds toward home building and investment goals.

Strategic Steps Towards Home Building in 5 Years
Step 1: Plan a Dedicated Savings Fund
Begin a dedicated "Home Building Fund" once the loans are paid off by September 2025. This will give you two years of free cash flow before the home construction goal.

Estimate the cost for building your house. Allocate monthly contributions based on the required budget over 5 years, adjusted for inflation.

A balanced mutual fund or an SIP in a multi-cap fund could be beneficial for growing this fund with moderate risk.

Step 2: Review Existing LIC Policies
Rs 19,000 monthly in LIC may not yield optimal returns. Consider the role of these policies in your overall portfolio.

If these are traditional or endowment policies, they typically offer low returns. Switching to term insurance and investing the rest in mutual funds could enhance your wealth-building potential.

Consult a Certified Financial Planner (CFP) for an analysis of the LIC policies to determine if a shift would benefit your long-term goals.

Step 3: Explore NPS and Additional Investments
NPS is a good retirement tool with Rs 20,000 monthly contribution, but it may not support short-term goals like home building.

Post-loan, consider a diversified mutual fund SIP to grow your funds for the next 5 years, aiming for inflation-adjusted returns.

A combination of large-cap and multi-cap funds offers stability with moderate growth, which is suitable for a 5-year timeline.

Structuring Finances for Future Goals
Step 4: Create an Emergency Fund
As government employees, your jobs are stable, but emergencies can occur. Aim for 3-6 months of expenses saved in a liquid or short-term debt fund.

This fund prevents disruption to your goal-oriented savings if sudden expenses arise.

Step 5: Regular Review and Adjustment
Review your investments annually with a Certified Financial Planner to ensure they align with your timeline and goals.

Assess any rise in construction costs or changes in your financial situation. Regular adjustments ensure you stay on track without compromising other financial priorities.

Finally
Your disciplined approach to clearing loans and managing monthly contributions is commendable. A focused investment strategy after loan repayment will allow you to grow the funds needed to build your house in 5 years. Maintain an emergency fund, optimise insurance, and regularly review your investments to ensure a steady path toward your home-building goal.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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