To Home Loan or Not To Home Loan ? Please solve my confusion

POSTED BY meghanabalaji ON June 17, 2014 6:47 pm COMMENTS (2)

Dear Investors,

Due to a sudden inheritance, I have come into some money which I would like to invest in a property in Bangalore. The amount of inheritance is equal to amount of the property minus 10 lacs.

SITUATION ONE:

I will also mindfully invest a portion of my salary in a FD so that it appreciates marginally and I will have the 10lac rupees needed to cover the home cost. The property is scheduled for possession only after 30 months. So I will invest all the money I have into a home without the burden of any loans.

SITUATION TWO:

I will pay some money towards deposit etc and invest the rest in a diversified plan.  I will take a home loan for 15 lacs [ full re-payment is:  23 lacs appx] and get some tax benefit on 80C and interest taken on home loan.

About me:

I dislike loans, credit cards and anything to do with lending. If it was possible I would save principle and only then buy what I want. I fall in the 20% tax bracket as on today.

Considering the speculation that govt is deciding to make till 5lacs income non-taxable, is it prudent to go for a home loan ?

Will I make so much return on the diversified plan that it warrants taking a home loan ? Interest component of home loan anyways goes down from year one onwards, therefore that means that you can’t even claim full 1.5lacs exemption for tax benefit. And in 80C you already have PF, Medical Insurance, Life Insurance, RGESS etc so tax benefit on principle amount of home loan is also less.

My consensus is that Home Loan is a waste of time & energy but I want to ask you for your opinion also so I can convince my CA 🙂

Meghana.

2 replies on this article “To Home Loan or Not To Home Loan ? Please solve my confusion”

  1. Kshitij_Peter says:

    Hello Meghana,

    (not sure if you are following this post..anyways).

    I agree with you.
    You can put numbers:
    Case I: You take home loan
    Invested: DP + EMI+Amortized loan remaining (there are many excels giving you this).
    Subtract from it the Earned/Saved part:Principle and Interest Earned on FD(this is money you had but you took loan )+Rent+Tax Saving(this would be max 45K per year but for you it might be much less).

    This will give you total invested.

    Now compare this with
    Case II: You DONT take home loan.

    Earned would be the Rent part+ Interest on the RD with the money that you put in for EMI.

    You can make this in an excel and compare the 3,5,7,10 year results.

    For my case I made calculations with 50L and when I had 35L cash(I was going to borrow some part) and it came even only after year 10.

  2. Hemanth Chandra says:

    How much tax will be saved and how much will you be paying as interest for the loan…. have you calculated this….

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