Financial Planning: Malhar Majumder

I plan to sell off my current house for about Rs 35 lakh and buy a new one worth Rs 55 lakh. My wife and I are planning to take a joint home loan to fund the purchase. Which should be the better policy — use the entire Rs 35 lakh and fund the deficit through a loan or try and get the maximum loan amount and invest the rest? Our monthly earning is Rs 1.1 lakh. We neither have liabilities nor dependants. What are the pros and the cons of both options?
There are a couple of considerations here.

The first is tax-related. If you make capital gains by selling the first house, you will have to invest a part of the proceeds from selling the first house in the second house, to nullify the effect of taxes.

Second, if you purchase a residential property with borrowed money — the maximum waiver you get for payment of interest is only Rs 1.5 lakh per annum — maximising borrowing will not really help, unless your income from investments is more than what you pay as home loan interest.

So, prima facie, my recommendation would be to borrow only up to Rs 20 lakh.

However, for further analysis, you may consult your financial planner.

The writer is director, Gliese Consulting. Views expressed are his own. Send your queries at yourmoney@bsmail.in