I‘m in the IT sector earning Rs 2.15L/month in hand, and I’m stuck between buying a 3BHK (Rs 90L) or a 2BHK (Rs 60L). I can make a Rs 30L down payment either way.
My concern is whether the 3BHK will stretch my finances too thin, especially without an emergency fund in place.
3BHK Plan: Rs 60L loan, Rs 50K EMI + Rs 50K extra repayment = Rs 1L/month
2BHK Plan: Rs 30L loan, Rs 25K EMI + Rs 25K extra repayment = Rs 50K/month
I also invest Rs 50K/month via SIP and want to build a Rs 1 crore portfolio long-term. Currently, I have Rs 16L in mutual funds, which I don’t want to touch. I plan to build a Rs 10L emergency fund quickly, given the uncertainty in IT.
Post-3BHK purchase, I’ll be left with just Rs 15K/month after EMI, SIP, and savings – vs ₹65K/month if I opt for the 2BHK. My family prefers the bigger space, but I’m worried about the financial strain and possible job risks. Flats don’t appreciate much, so I want to close the loan fast.
Is the 3BHK worth the squeeze or is the 2BHK the smarter, safer option for long-term wealth and peace of mind? Honest inputs appreciated.
Advice by Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance
Should You Stretch for a 3BHK or Settle for a 2BHK? Here’s a Holistic Financial Lens. Building a ₹10 lakh emergency corpus should absolutely be your first financial milestone – one that covers 6 to 9 months of total monthly commitments, including living expenses, SIPs, EMIs, insurance premiums, and utility outflows. This buffer becomes even more critical given the rising job uncertainties in the IT sector.
1. Insurance: The Often-Ignored Pillar
In addition to the emergency fund, your insurance protection – both term life and health – needs to be robust. A sudden job loss or medical emergency can derail financial plans far more than a missed SIP or EMI.
It’s common for banks to club term insurance with home loan applications, often under group policies that may not offer adequate cover or portability. You’re well within your rights to decline this bundling and instead purchase an independent pure term plan of sufficient value (take adviser’s help) from a trusted insurer. Likewise, ensure your family is covered under a comprehensive health insurance plan, separate from any employer coverage.
Choosing the 2BHK option gives you the headroom to build both your emergency reserve and insurance coverage over the next 12-15 months without disrupting your existing SIPs.
2. Property price appreciation
It’s important to note that property price appreciation in India varies significantly from city to city. In Tier-1 cities, the appreciation has averaged around 5-7% CAGR over the past five years (with a few exceptions), according to data from the 1 Finance Real Estate Research Report (https://indiamacroindicators.co.in/resources/blogs/is-indias-housing-market-still-a-good-bet).
Additionally, 3BHK flats tend to have lower resale liquidity than compact 2BHK units, especially as the urban buyer base increasingly comprises nuclear families. While a 3BHK may offer immediate lifestyle comfort, its long-term return potential isn’t guaranteed – particularly if purchased at the upper end of your affordability.
Your strategy of aggressive prepayment is commendable, but it’s worth questioning whether diverting ₹1 lakh/month toward loan repayment is optimal – especially at the cost of liquidity, peace of mind, and long-term compounding.
3. SIPs vs. Loan Repayment
Your goal of building a Rs 1 crore investment portfolio via Rs 50,000/month in SIPs is entirely achievable. At a 12% annualized return, you’re on track to hit the Rs 1 crore mark in about 11 years. However, if you reduce or halt SIPs to accommodate a larger EMI burden, your corpus could fall short by 15-25%, depending on the delay.
In today’s context, this trade-off becomes even more important.
With home loan interest rates hovering around 7.5% (thanks to multiple RBI rate cuts), your SIPs could potentially earn more than what you save in interest through early repayment.
This opens up an alternate path: maintain the minimum EMI, and instead of prepaying, continue investing aggressively, letting your wealth compound. We need to do calculations to compare the same.
2 BHK may give you preserve cash flow, build a solid emergency fund and insurance base, and continue long-term wealth creation through SIPs. Retain peace of mind during career or economic uncertainty
You can always consider upgrading to a 3BHK a few years down the line, once your loan burden reduces or income improves. At that stage, you’ll also have better negotiating power, more savings, and potentially higher property options – without the anxiety of living pay check to pay check.
Final Note
While the above recommendation leans toward the 2BHK option, it’s important to acknowledge that a truly accurate financial decision must consider your full context. Some of the missing details that could significantly impact your plan include:
· Your age and retirement timeline
· Number of financial dependents (parents, children, spouse)
· Your city (real estate trends vary widely)
· Any other income sources (freelance, rental, inheritance)
· Total monthly expenses and liabilities
· Employer benefits like ESOPs, insurance, bonuses, etc.
Your loan eligibility, risk appetite, and optimal asset allocation all vary depending on these factors. If you’re serious about creating a long-term plan, consulting a SEBI-registered financial planner might be a worthwhile investment.