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Oct 12

Your Financial Plan

I work in a software company in Canada and my fiancé works in India. I am planning to migrate back to India. My fiancé wishes to buy a flat worth 40 lakh before our wedding and gift it to her parents. She will pay the EMI from her salary. Besides that, she will be helping her parents with a monthly sum of 15,000. Is it a good idea for her to buy the flat or is it more sensible for her to pay rent for her parents’ accommodation until the end of their lifetime?

Nagarajan

Buying a house may seem a good idea if your fiancé’s parents are going to live for another 15-20 years. But this will put huge pressure on your family finances. Assume, she takes a home loan of 32 lakh at 8.8 per cent for 15 years; the total outgo will be 57.7 lakh. For the initial payment, say, she takes a personal loan of 8 lakh at 12 per cent interest for 48 months; the outflow will be about 10 lakh.On the whole, the outflow will be about 68 lakh.

If the property value increases at 8 per cent annually, the house value will be about 1.26 crore after 15 years. So, the net gain is about 60 lakh. Alternatively, if you pay rent and invest monthly in a portfolio earning 12 per cent return, it will grow to 1.02 crore after 15 years. This will give her great financial freedom. Besides, you should take into account that your wife may need to take job breaks for 3-6 months for parenthood. The burden during these periods will be heavy. Also, if there is a medical emergency for her parents, it could further stress your family finances.

Net-net, it seems more financially prudent for your fiancé to incur the rental expense for her parents than buy a house for them.

The writer is an investment advisor and founder of Myassetsconsolidation.com. 

 

This article was published in The hindu-Business line on 07/10/2018.

 

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