Need Expert Advice?Our Gurus Can Help

Should I Sell My Existing House to Avoid Paying EMI on My New Home?

Ramalingam Kalirajan |8086 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jan 20, 2025

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

Question by Ashutosh on Jan 20, 2025Hindi

Hello Sir, I am 37 year old, married and have a Daughter who is 2 year old. We are in process of buying a new house in the City where I am working, for which I will be taking 80% Loan. I already own a house whose loan has been closed but it is located in another City. I want to know, financially will it be better to sell the other house, and close the new loan, or keep paying EMI of the new house, while keeping the other one. The other house is right now on rent, but the rental yield is very low, approximately 2.5% I have a good MF account which I am not going to liquidate, and I can continue the SIP, even with the EMI going on

Ans: You are planning to buy a new house in your work city.

You will take a loan covering 80% of the cost.

You already own a house in another city, which is on rent but provides low yield (2.5%).

Your mutual fund portfolio is healthy and ongoing SIPs will continue.

Assessing the Financial Options
Option 1: Selling the Old House and Closing the Loan
Loan-Free Living: Selling the old house eliminates the new house EMI.

Low Rental Yield Issue: With just 2.5% yield, keeping the old house may not be optimal.

Capital Appreciation Consideration: Assess whether the old house has strong future appreciation potential.

Tax Implications: Selling the house may lead to capital gains tax. Calculate this before deciding.

Option 2: Keeping the Old House and Paying EMI
Diversified Assets: Keeping the old house retains a tangible asset apart from your mutual funds.

Loan Interest Considerations: Compare the home loan interest rate with the rental yield.

Rental Income Value: If the rental yield does not cover even a part of the EMI, this option may strain cash flow.

Hassle Factor: Managing a property in a different city involves effort and costs.

Evaluating the Loan Repayment
Factors to Consider
Loan Tenure and EMI: Longer tenure results in more interest outflow.

Home Loan Tax Benefits: Interest repayment and principal repayment have tax benefits.

Cash Flow Analysis: Ensure EMI payments do not restrict your other financial goals.

Impact on Mutual Fund Investments
Your decision should not impact ongoing SIPs.

Equity mutual funds offer better returns than the rental yield of 2.5%.

Liquidating mutual funds to close the loan is not advisable.

Tax Implications on Property and Loan
Selling the Old House
Capital gains tax applies if sold at a profit.

You can reinvest gains in another property to claim exemptions under Section 54.

Home Loan Repayment
Interest repayment qualifies for tax deduction under Section 24(b).

Principal repayment is eligible under Section 80C, capped at Rs. 1.5 lakh annually.

Final Insights
Selling the old house can simplify finances and reduce debt.

Keeping the house works only if rental yield improves or capital appreciation is significant.

Do a detailed analysis of cash flow, tax implications, and opportunity costs.

Your decision must balance current needs with long-term financial goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Asked on - Jan 20, 2025 | Answered on Jan 20, 2025

thank you Sir for sharing the insight

Ans: You're welcome! If you have any more questions or need further assistance, feel free to ask. Best wishes on your financial journey!

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

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.