What to do if I have huge amount of money – Home Loan Vs Upfront Payment

POSTED BY gaurav.thinking ON March 13, 2014 1:13 pm COMMENTS (11)

Hi Investors,

There were many ideas and clarifications on topic, Prepayment of housing loan vs Investment in FD/other Instruments. I need to understand that if a person has a huge amount on hand(liquid) and he would like to buy a house, what he should do ?

1. Complete Down-payment or Invest the amount and Take Loan? (ps, myself still falls under 20% slab)
2. If investment, what are the best options?
3. If Loan, what’s the beneficial tenure, as I understand from the calculations below, longer the return, better the gain. Also, someone suggested to keep Loan limited to 30 Lakhs, if possible for benefits.
3. If wife is non-working, is it advisable to make her a co-owner while applying the loan, for any future prospects?
4. Consider the cost of a house is 50 Lakhs and I have 50L Liquidity available. Based on the recent RBI notification,

lets consider 20 L Down Payment(from available Liquidity) + 30 L Bank loan.

Option 1 : 30 L Lone(10.15%, 25 Year) + 30 L Investment ( NSC for 25 years @ 8.8%)
Option 2 :20 L Lone + 20 L Investment ( NSC for 25 years @ 8.8%)
Option 3 :10 L Lone + 10 L Investment ( NSC for 25 years @ 8.8%)

In the above mentioned calculation, I took the Final Gains = total return from investment – total amount paid to bank. And I found the results were maximum for Option 1. Hence, i reached to a conclusion that taking a loan for longer terms is beneficial.

Please suggest.

11 replies on this article “What to do if I have huge amount of money – Home Loan Vs Upfront Payment”

  1. ashalanshu says:

    Dear Gaurav, my existing SIPs are still active in my funds. You can decide your own course of action. if you want to wait on sidelines. No issue. But in case by that time, market reaches to new high, do not curse yourself for sitting idle.

    Thanks

    Ashal

  2. gaurav.thinking says:

    Thanks Ashal,

    Just need one understanding, since Sensex is it’s best peak of recent time, is it good time to invest in MF, else I should wait till Loksabha elections.

    ps, I understand that if it’s long term MF investments, it irrespective to validate market before entering.

    Regards,
    Gaurav

  3. ashalanshu says:

    Dear Gaurav, both these funds are good. I usually recommend these 2 funds for anybody here. So you may start with these 2 funds.

    Disclosure – I do have my personal investment in these 2 funds.

    Thanks

    Ashal

  4. gaurav.thinking says:

    Dear Ashal,

    I posted the names, after following some threads in the same context in JagoInvestor only. I joined this forum recently and really appreciate the work in progress here.

    Also, as I understand one needs to starts understanding the market, concepts, involvements and risk profile on their own before going ahead. So far, I am a layman in that context, so exploring out some reference to get a grip.

    Regards,
    Gaurav

  5. ashalanshu says:

    Dear Gaurav, please try to dig for the info already posted by you. Why the said 2 funds are good? I may provide funds’ name but I want you to first understand why the 2 funds selected by others are good or not good.

    Thnaks

    Ashal

  6. gaurav.thinking says:

    Hi Ashal,

    Thanks for the response.

    I would like to do some further research about Equity investments, can you share some good links for the beginners.

    Someone suggested Sundaram Tax Saver and SBI magnum are the best from many aspects, any comments on the same ?

    Thanks,
    Gaurav

  7. ashalanshu says:

    Dear Gaurav, first point – please be very clear that being a market linked product, there is not at all any guarantee of return in Eq. MF investment by you. You may get super duper returns or very ordinary return so making a choice here is your own right.

    if you opt to invest in Eq. MFs, I w’d suggest you to invest in only 2 funds.

    Franklin India Bluechip Growth option Direct plan
    Quantum Long Term Eq. Growth option

    Thanks

    Ashal

  8. gaurav.thinking says:

    Dear Ashal,

    Thanks for the response. Actually, I thought of investing in the Eq. Funds, but I find myself novice to this stream ; i.e. where/how much/how and when to invest and all that…

    Can you pls. share some thoughts or reference links for the same ?

    Thanks,
    Gaurav

  9. ashalanshu says:

    Dear Gaurav, if that’s the case, why to restrict your money in tax paying FDs or NSCs, why not paying 10-12L Rs. as down payment and remaining 38-40L Rs. loan and now park the saved amount into Eq. funds to remain invested till the loan term of 20Y at least to get the benefit of long term Eq. investment? Here no tax ‘ll be there on maturity as p[er current tax rules. 🙂

    thanks

    Ashal

  10. gaurav.thinking says:

    hi Anshal,

    I understand that TAX on NSC is exempted till maturity year, it has to be paid only for the last year.
    Even if, I include the same for FDs, still the overall gain is positive if one opts the investment options.

    Please suggest.

    Regards,

  11. ashalanshu says:

    Dear Gaurav, who ‘ll pay tax on your earning from NSC or FDs?

    Thanks

    Ashal

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