Should I take a home loan or sell my stock/MF portfolio to finance the down payment?

An alternative is to sell other assets such as stock or mutual fund portfolios, to reduce or completely remove the need for a loan. But the question is, is it worth it? Which decision is right for you? Read on to find out.
Should I take a home loan or sell my stock/MF portfolio to finance the down payment?

Owning a house is a dream most people have. But houses are very expensive and purchasing one requires considerable planning. While financing a loan, there might be several credit options that you can choose from. However, not everyone wants to bear the burden of a loan as it can last for several years.

What are Mutual Funds/Stocks Portfolio?

A mutual fund is a financial tool that pools money from various investors and puts it in different securities. Individuals often invest their surplus money in stocks either directly or through mutual funds.

With the onset of digitization, it has become excessively easy to invest and keep track of your investments. People usually prefer to invest for the long term so as to build a sizable corpus for retirement. This makes mutual funds a safer investment. It also allows you to diversify and access securities that you would otherwise not be able to invest in.

Reasons for retaining your mutual funds/stocks

Investing in mutual funds and stocks comes with the benefit of liquidity. You can easily trade your financial assets and quickly convert them into cash. There is flexibility regarding the size of your capital. Moreover, you get returns in terms of dividends, bonus issues, an increase in the price of stocks, and so on.

Apart from this, it allows diversification. This helps you mitigate risk while also venturing into various sectors. It is a cost-efficient way of investing your savings.

Learn how to calculate the risk of your portfolio in our blog on how to determine portfolio risk on our website.

These investments also come with tax benefits. You can claim deductions that reduce your tax liability. In fact, interest and earnings on such investments are also tax-exempt.

You can adjust the way you invest so that it suits your overall financial goals.

Reasons for selling your mutual funds/stocks

Operating in the stock market comes with a fair share of risks. These typically arise from market fluctuations. You may even stand to lose your entire capital.

Moreover, research and keeping up with the stock market takes up a considerable amount of time. It can be stressful to be tracking every movement and worrying about its implications. Apart from this, returns are not always guaranteed.

However, to free yourself from such worries, you can reach out to experts. At TejiMandi, we strive to analyse your risk profile and invest in stocks that furnish the highest returns for you.

After a better understanding of stocks and mutual funds, let us look into home loans.

What are home loans?

A home loan is a secured loan offered by banks or other financial institutions. It enables you to make payments for your new home. After a house is purchased using the loan, the principal amount along with the interest must be paid to the lender through EMIs. The purchased house serves as the collateral till the loan is completely paid off.

The interest rate on the loan may differ from institution to institution. At present, banks charge interest at around 6%-9%.

Reasons for availing of home loans

The good thing about home loans is that it allows people with relatively low incomes to afford a house as well. This is because loan repayments are in the form of EMIs. This is a nominal charge paid every month. What’s more? Consistent and timely payment of EMIs increases your creditworthiness.

Moreover, the Interest rate is lower compared to personal loans, gold loans, and loans of other types.

In the long run, you also benefit from the appreciation of property value. While, in the short term, you benefit from provisions regarding deductions while paying income tax. This reduces your overall tax liability.

Reasons for not availing of home loans

Home loans generally have a long payment period. It usually lasts between 10 and 30 years. This increases your interest burden significantly.

Moreover, EMI payments have a high opportunity cost. The amount you shell out every month could have been invested in another place that provides some returns.

Further, if you are unable to pay the due because of unforeseen circumstances, you may stand to lose your house. Not only does this increase your burden, but also harms your credit score.

Apart from this, you lose out on the House Rent Allowance deduction while paying your taxes. Even though it may not be a much significant loss as you benefit from other deductions.

Keeping the advantages and disadvantages of both financing methods in mind, let us see what path you may choose.

Should you take a home loan or sell your stock/MF portfolio to finance the down payment?

The course of action you choose depends on various factors such as your financial position, the real estate market, and the stock market.

For instance, if you are tired of paying rent and are sure about settling in a particular area, you might derive more utility from purchasing a house. If that means putting any gains from the stock market on hold, it is worthwhile.

In a similar vein, you may wish to sell your portfolio if the stock market is overvalued and the real estate sector is undervalued. Naturally, you might not want to sell if the situation is reversed.

You may reason that investing in stocks and mutual funds is beneficial, as you can use the returns when needed. Hence, there is no reason why you cannot use your portfolio to finance the down payment on your house. Another factor to consider is the size of your portfolio. If it is large enough to make EMIs negligible, you will have no debt and will be in a position to rebuild your portfolio again.

However, in the end, you do not have to make a decision that leans towards either extreme. You could simply choose to sell a certain part of your portfolio to partly finance the down payment and still hold on to promising long-term stocks. This way, your debt burden goes down and you benefit from long-term gains.

In conclusion

People are emotionally attached to things, be it their stock investments or house. The only person who can accurately judge your unique financial position and make a decision is you. If you are fully aware of the trade-offs that arise from choosing either of the options and have considered them while formulating your long-term financial plan, you are not likely to go wrong with your decision.

Experts at TejiMandi help you decide on the right part after a thorough analysis. Reach out to us to get professional insight.

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