To pay cash or loan on fd which is better

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2015 Question is- my friend is taking a home loan of Rs.10 lacs and property value is 20 lacs including registration etc. Now bank has sanction him Rs.10 lac and he has to pay balance Rs.10 lac out of his pocket.
He has fds of Rs. 15 lacs.
Now he has two options.
1. Break fd and pay Rs.10 lacs.
2. Bank offered him a offer that is take od on fd at same rate of fd and at same amount of fd. I.e.Rs.10 lac @9% on lien of 10 lacs' fd (since he was x-staff family member of bank).
Here it clear that bank will keep interest and release fds in future when he wil pay rs.10 lacs.
Which otion he should opt and WHY ?? Please give answer with detailed examination..
Loan emi etc are not dependent on this 10 lacs.

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2015 Please avoid taxation point of view as friend is not in tax bracket.

Querist : Anonymous

Querist : Anonymous (Querist)

17 June 2015 Please avoid taxation point of view as friend is not in tax bracket.

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CA. Sunil Gokhale

CA. Sunil Gokhale (Expert)
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17 June 2015 Taking overdraft against FD is better than breaking the FD particularly when the rate for OD is same as the rate on FD. The interest on the balance Rs.5 lakh FD will also help him to reduce the amount of OD balance and save on interest on the OD while he continues to earn interest on full Rs.15 lakh FD. Another advantage is that whenever he has any spare money he can deposit it in the OD account to save interest on the OD but he will continue to earn interest on the FD. If he needs money he can withdrawn from the OD and pay interest only on the amount withdrawn.

Querist : Anonymous

Querist : Anonymous (Querist)

18 June 2015 Thank you sunilji for your quick response. But don't you think that in that way it will increase cost of property indirectly. If he has fds then why should he take loan? Of course breaking fd will be the cause of future interest loosing opportunity cost,but this opportunity benefit of interest is of bank and not of customer.
Kyoki in fd ka interest to bankwala le lega,iske bajay fd cash karale to kya ye saving in indirect purchase cost of property nahi hogi??