Raj Lakhotia Managing and Founder Partner, LABH & Associates replies: Generally, top up housing loans do not come with restrictions on end use of funds except for speculation purposes. Refer to the loan agreement with the bank or finance company to avoid any violation. Interest on housing loan, subject to the monetary ceiling, is allowed as deduction from income u/s 24(b) if the loan is utilised for acquisition, construction, repairing, renewal or reconstruction of the house property. Since the money is not going to be utilised for any of the above purposes, you won’t be able to claim interest expense under this section. Any income which arises on any as set transferred to the spouse of the individual shall be included in the income of the individual. If the loan is given to your wife without interest, there could be possibility of clubbing of in come from share trading to your income.
I work in a bank and have availed a housing loan under staff scheme for a self-occupied house. Now I am planning to take a top up for a second house in Pune as an investment. Do you think it’s a good idea or should we focus on reducing our existing loan liability?
Raj Khosla Founder and Managing Director, MyMoneyMantra.com replies: A staff home loan may indeed cost as little as 2-4%, depending on the employer’s policy. However, amidst covid induced job, health and financial uncertainties, it is recommended to keep a careful check on your cash flows and overall credit health. Even though the loan is available at a discounted rate, you should avoid long-term speculative investments in real estate, particularly with an ongoing mort gage. In today’s environment, rentals are also under a cloud. The fixed obligations to income ratio should not exceed 40% of the net take home income. You should in stead revisit your portfolio and minimise existing EMIs, besides ensuring sufficient health insurance, term cover of 10X annual income and six months’ emergency fund. As things im prove, you can reassess your strategy.
I am 53 and lost my job in May 2020. I spent Rs 30 lakh from my savings for my son’s higher education abroad. Rs 40 lakh was paid through an education loan. He is now looking for a job. I have a house worth Rs 34 lakh, Rs 5 lakh in PPF, Rs 5.50 lakh in NPS, Rs 25 lakh in PF, Rs 4 lakh in FDs and stocks worth Rs 3 lakh. My total liability comprises the Rs 40 lakh education loan and Rs 7 lakh LIC loan. Soon I have to arrange Rs 3 lakh for my other son’s MBA. I have started my own consultancy which is not doing well. Our monthly expenditure is Rs 50,000 and our present income is Rs 37,000 (rental income of Rs 12,000 and my wife’s salary of Rs 25,000). We are covering the shortfall with our savings. Should I sell the house to get rid of the education loan? The EMI of Rs 67,000 will start from August 2022. We also need an investment plan to earn around Rs 20,000-22,000 per month. Please advise.
Sanjiv Bajaj Joint Chairman & MD-Bajaj Capital replies: You should explore all your best possible alternatives before selling the property as the loan repayment does not start till August 2022. Considering your financial health, monthly and upcoming expenses, it is advisable to minimise your existing monthly expenses as much as you can. The need of the hour is to generate a second source of regular monthly cash flow which can be obtained via SWP option in debt mutual funds. Consider withdrawing the maximum permissible amount from your PF corpus and invest the same in high quality debt mutual funds like Banking & PSU funds or Corporate Bond funds with SWP option. This should be at least 20 basis points lower than the current YTM of respective funds. This will not only ensure regular monthly cash flow but also protect your capital. The capital can be invested in the Senior Citizens’ Savings Scheme once you are 60.
