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. Send your queries to blinefp@gmail.com

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