Seeking Advice on Whether to Continue Loan on Third Property | Reader Question

Ans: Your situation is quite common. Here's how you can manage selling your first property and using the proceeds to pay off your current loan.

Current Situation
First Property Purchase Price: Rs. 24 lakhs in 2014

Current Market Value: Rs. 55 lakhs

Loan on First Property: Cleared

New Property Loan: Rs. 49 lakhs

Selling the First Property
1. Market Value Assessment

Property Valuation: Ensure you have a fair market valuation for your first property. The current value is Rs. 55 lakhs.

Agent Assistance: Consider hiring a real estate agent to help with the sale. They can provide valuable market insights and handle negotiations.

Financial Considerations
2. Capital Gains Tax

As the indexation benefits are not there NOW, 12.5% CG tax, you need to pay.

3. Sale Proceeds Utilization

Loan Repayment: Use the sale proceeds to repay your new property loan. This will reduce your debt burden significantly.

Remaining Funds: If any funds remain after loan repayment, consider investing them wisely for future financial security.

Loan Adjustment Process
4. Loan Repayment Process

Prepayment Penalty: Check if there is any prepayment penalty on your current loan. Some banks charge a fee for early loan repayment.

Lender Coordination: Coordinate with your lender to process the loan prepayment. Ensure you understand all terms and conditions.

Investment Strategy
5. Investing Remaining Proceeds

Mutual Funds: Consider investing any remaining funds in diversified mutual funds. They offer potential for higher returns over the long term.

PPF and NPS: Allocate some amount to PPF and NPS for safe, tax-efficient, long-term growth.

Final Insights
Selling your first property and using the proceeds to clear your current loan is a wise move. It will reduce your debt and free up funds for investment. Regularly review your financial plan and adjust as needed. Seek guidance from a certified financial planner to tailor a plan specific to your needs.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Your current debt of Rs 79 lakh is significant. Selling your first flat could reduce your loan burden by Rs 50 lakh, leaving Rs 29 lakh outstanding. However, decisions should align with long-term goals, affordability, and potential returns.

Here’s a breakdown to help you decide:

Option 1: Sell the Flat and Reduce Debt
Advantages:
Lower Debt Burden: Reduces loans to Rs 29 lakh, significantly decreasing EMI obligations.
Better Cash Flow: Frees up monthly cash for other financial goals or investments.
Reduced Interest Cost: Paying off Rs 50 lakh immediately lowers overall interest payments, saving a substantial amount.
Disadvantages:
Loss of Asset Growth Potential: Real estate prices may appreciate over the years. Selling might mean losing future capital appreciation.
No Rental Income: Selling eliminates the passive income that currently covers your flat’s EMI.
Option 2: Retain Both Properties and Focus on Prepayments
Advantages:
Asset Appreciation: You retain ownership of both properties, benefiting from potential price appreciation over time.
Rental Income: Ongoing rental income can contribute to paying off the flat’s EMI, keeping cash flow stable.
Disadvantages:
High Debt Pressure: Managing a Rs 79 lakh loan requires disciplined budgeting and significant prepayments to reduce interest costs.
Interest Accumulation: Continuing with high debt over the long term increases total interest paid.
Recommended Approach
Selling the Flat May Be Better If:
You prioritise reducing stress from high debt.
You don’t foresee substantial appreciation in the flat’s value.
Clearing a large portion of your debt aligns with your financial comfort.
Retaining the Flat May Be Better If:
You can afford current EMIs and have surplus funds for regular prepayments.
The flat is in a location with strong appreciation potential.
Passive rental income is a key component of your financial plan.
Practical Advice
Evaluate Loan Interest Rates: Check the interest rates for both loans. Prioritise prepaying the one with the highest rate.
Review Budget: Assess whether prepayments are feasible without compromising financial security.
Consider Property Market Trends: Evaluate the appreciation potential of your flat before deciding to sell.
Seek Professional Guidance: A Certified Financial Planner can assess your risk tolerance, long-term goals, and cash flow needs to offer tailored advice.
Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

Ans: You have shown good intent by selling gold and clearing your debts.

Still, this new flat purchase needs careful review from all angles.

Let us assess your full situation and suggest a balanced, long-term approach.

This answer looks at every part of your current financial life.

Current Home and Existing Loan
Your current flat was bought for Rs.67 lakhs four years back.

Out of that, you took a loan of Rs.50 lakhs.

The current rental income is around Rs.20,000 per month.

This rent gives about Rs.2.4 lakh per year.

Rental yield is quite low in comparison to your loan EMI.

Real estate often gives rental returns of only 2–3% per year.

But your home loan interest is around 8%–9% yearly.

This gap creates a burden on your cash flow.

Keeping this flat only for rent may not be financially helpful.

Your Salary and Existing Loan Burden
Your total salary is Rs.1.6 lakh per month.

That is good, but needs proper budget management.

You already have one home loan and one car loan.

A second home loan of Rs.80 lakh will be a big load.

Two home loans and one car loan will stretch your EMI ratio.

Your EMI commitment may cross 60% of salary.

This makes day-to-day life stressful and risky.

Banks also limit eligibility if EMIs cross 50–60% of salary.

New Flat Plan – Is It Suitable Now?
You are planning a flat of Rs.95 lakh with Rs.80 lakh loan.

This is a big jump from your earlier flat price.

Loan EMI alone may be around Rs.65,000 to Rs.70,000 per month.

Managing this EMI along with old loan EMI and car EMI is difficult.

Plus, other expenses, bills, and savings will also need cash.

Property tax, maintenance, and interiors will need extra funds.

With your current salary, this may cause heavy strain.

And if job loss or emergency happens, the risk is high.

It is better to delay this second flat unless cash flow improves.

Keeping or Selling Existing Flat – What Is Better?
The rental income of Rs.20,000 is very low against the cost.

EMI, maintenance, and tax on that flat reduce actual returns.

Also, resale value after 4 years may not be very high now.

Selling the flat can help reduce your home loan burden.

You can use the sale amount to reduce new flat loan or invest.

Or, if you cancel new flat purchase, use funds for better financial goals.

Think about whether you need two flats at this stage.

A second flat gives low returns and blocks your liquidity.

Instead, one good home and mutual fund investments give better results.

Alternative to Property – What You Can Do Instead
With your surplus from salary, start investing in mutual funds.

Mutual funds are flexible, tax-efficient, and transparent.

Returns from mutual funds over long term are higher than rent.

You can start SIPs as per your risk level and goal duration.

Equity mutual funds help in wealth building.

Hybrid and debt mutual funds support safe and steady growth.

Please use regular funds through a Certified Financial Planner.

Avoid direct mutual funds. They give no review or correction support.

Direct funds also cause wrong asset mix and poor fund selection.

Gold Sale and Use of Funds – Was It Wise?
You sold gold worth Rs.25 lakh and cleared debts.

That was a good step. You have reduced bad loans smartly.

But don’t use all your assets for property again.

It is important to keep a balance across asset classes.

Use some gold money for liquid funds or emergency corpus.

Use part for mutual fund investments based on future goals.

Avoid repeating same mistake of taking high loan again.

Emergency Reserve and Liquidity Planning
Every family must keep 6–9 months of expenses as emergency fund.

This must be in liquid mutual funds or bank deposits.

If all money is in property, you can't access during emergency.

So, avoid locking all savings into the second flat.

Liquidity is safety. Not having cash causes problems even with assets.

Build an emergency fund of Rs.3–4 lakh minimum.

Car Loan – Should You Clear or Continue?
You also have a car loan now.

This is a depreciating asset. It does not grow in value.

Try to close this loan early if possible.

Paying high interest for car EMI reduces your savings.

Don't upgrade car or take new loan unless income rises.

Family and Future Needs – Are They Covered?
Property alone cannot secure your future.

You need to plan for child’s education, retirement, and emergencies.

Insurance protection is also needed for your family.

Take proper health insurance and term insurance.

Don’t rely only on property as financial backup.

Mutual fund SIPs and debt funds give support for long-term goals.

Important Financial Ratios to Watch
EMI to salary ratio should be under 40%.

Loan to asset value should not cross 60%.

Your current plan crosses both these limits.

Two home loans and a car loan may block your growth.

Keep your fixed obligations flexible and manageable.

What You Can Do Now – Practical Steps
Postpone the second flat purchase for now.

Recheck your actual need and affordability.

Consider selling the first flat if it has poor rental yield.

Reduce loan burden and improve monthly cash flow.

Build strong SIPs and liquid investments.

Don’t lock all assets in property and loans.

Close car loan if funds allow.

Keep emergency cash ready in liquid funds.

Do not buy any more real estate unless income doubles.

Finally
You are financially aware and want to grow smartly.

But growth should not come with pressure and debt risk.

A second flat may look attractive but may block your liquidity.

Wealth creation should focus on balance, not just ownership.

Mutual funds give better flexibility and higher long-term returns.

Keep reviewing your goals with a Certified Financial Planner.

Stay invested, stay liquid, and stay peaceful.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

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