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Should I buy a house using my PF and taking another loan? I'm currently paying rent and considering a 45,000 EMI.

Milind Vadjikar |1119 Answers |Ask -Follow

Insurance, Stocks, MF, PF Expert - Answered on Oct 04, 2024

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more

Question by Anand on Oct 02, 2024Hindi

Money

Last month i purchased one property and take loan of 24 lakhs for which I need to pay 25000 as a EMI. Now I want to purchase another property flat for personal use at present I'm in rented house. So for this property I plan to withdraw PF amount and also take another loan for 20 lakh ....total EMi will be 45000... So it is good to purchase house from PF account. Total EMi will be 45000 but my rent will save 15000 net payout will be 30000... Please suggest

Ans: Absolutely ok to use PF corpus for buying residence for self use. Please go ahead.

All the best!!

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 Kalirajan |8125 Answers |Ask -Follow

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

Ramalingam Kalirajan |8125 Answers |Ask -Follow

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

Question by Ashutosh - Jan 20, 2025Hindi

Money

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

Milind Vadjikar |1119 Answers |Ask -Follow

Insurance, Stocks, MF, PF Expert - Answered on Mar 17, 2025

Question by Sasanka - Mar 15, 2025Hindi

Money

Dear Sir, I am 52 now, I have accumulated 19L in SIP of Rs.42000 p/m, 14L in PPF. I have withdrawn Rs. 12L from EPF for investing in a property of 45 L with a bank loan of 35 L which would invite an EMI of 32000 for next 18yrs. Due to this I might have to stop some SIPs (around 25000/0) in the first year to manage the first year EMI. However, I plan to increase the SIP by Rs. 6000 year after year. My present flat if sold off might fetch me around 25L if in need. If rented, I would get around 10000 p/m. I think of keeping both the flats. My daughter is doing her B.Sc right now, this is for info. My question, if the decision for purchase of new flat have been wise? At end of my pvt. co. service after 8 yrs. should I pay off the total principal at once or try to continue the EMI for next 10 yrs.? What do you think my financial condition be at time of retirement? Thank you. Kindly respond.

Ans: Hello;

Based on the given information, my view is your decision to purchase new flat is not correct from fiscal prudence standpoint.

It is preferable that you close all outstanding loans before getting into retirement.

Based on given information, you may have a corpus of around 1 Cr+, 8 years from now plus two flats.

Best wishes;

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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