Dilemma to clear loan or create property

POSTED BY Financenoob ON October 6, 2013 10:39 am COMMENTS (6)

I am finding it difficult to ascertain what is financial prudence.

I have ready cash of about 20 lakh. My current home loan is also 20 lakh for a flat which gives me Rs 10000 as monthly rental. I can repay the loan or part pay the loan or take another 10 to 15 lakh as loan and build another property. I am not able to decide, can any one help with numbers and logic and demonstrate what is a better decision.

6 replies on this article “Dilemma to clear loan or create property”

  1. indiaus says:

    Dear Financenoob,

    Your current rate of interest is very attractive so no need to prepay the loan, as u feel more confidence in property – go in for property if liquidity in the near future is no issue for you and u expect that there would be no cashflow problem thruout the tenure.

    However i would still emphasize on having a helicopter view on your Financial Situation and needs before going ahead


    Chandan Singh Padiyar

  2. ashalanshu says:

    Dear Financenoob, what is the rate of return in property net of all charges and tax? Please provide the comparative data for other asset class also for your answer.



  3. ashalanshu says:

    Dear Financenoob, why are you thinking for property alone as your investment vehicle? What about PF, PPF, FDs, RDs, MFs, direct Stocks, Gold………..



    1. Financenoob says:

      Dear Ashal
      Considering the rate of return in other investment vehicles, other than stocks and MF, do you think it can match Property.
      Secondly MF and stocks are not as reliable as property, land to be more precise. Any thoughts at that.

  4. indiaus says:

    A lot of things need to consider,
    1. What is the Tenure remaining on your current outstanding Loan and at what Interest rate ?
    2. Will you require a Loan in the near Future for any other requirement ?
    3. What is the return you are expecting on the Investment of your current Amount available with you ?
    4. What are your other requirements in Life that you need to fulfill ?

    Try to find out the answers to these questions you should be able to get the answer

    1. Financenoob says:

      I can say the following to the question posed by you
      First the balance loan tenure for existing loan is 16 years at 8.95%.
      Secondly no loan would be required in near future.
      Thirdly I am not sure about the return but I suppose that in 5 years time both the properties will start paying for itself through their rents. Any property price escalation and rent escalation is bonus.

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