Should we Prepay Home Loan
Should we Prepay Home Loan

Should we prepay our Home Loans?

We buy our Dream Homes using Home Loans. After few years, when we have some surplus funds, we start thinking of whether we should prepay our Home Loans?

Decision to prepay or pay in part should be purely based on basic understanding of Finance and it should not be a emotional one or just because someone advises you to do that.

Before that, let us understand why One should avail Home Loan or what are the benefits of the Home loan?

Benefits of Home Loans :

1. Lowest Interest Rates

  • Credit Cards : 30%
  • Personal Loan : 12 – 15%
  • Car Loan : 9-10%
  • Home Loan : 8.5%

2. Tax Benefits

  • a/Principal Repayment : U/S 80 C, Deduction of Rs. 1.5 Lakhs.
  • Interest Payment : U/S 24 :

    Self Occupied House : Max Rs. 2 Lakhs & Let Out House : No Limit

3. If Tax Benefits is factored in the Interest rate, effective Home loan Int rate reduces by 2-3%, Effective HOME LOAN INTEREST is hardly 5-6%.
 

As we see above, the “Cost of Borrowings”for Home Loans are much lower than for any of the other loans available in the market, one should not only avail the Home Loans but also keep it for longer duration so far as possible

What are other Options available in the Market to invest this surplus money?

  1. OPTION 1
    1. INVEST IN HIGH RETURN INVESTMENTS

    2. MUTUAL FUND : Return : 12-15%

    3. REAL ESTATE : Return 20% OVER 4-5 YEARS

    4. GOLD : Return 9-10%

    5. STOCKS / EQUITY : Return 20%

    6. FIXED DEPOSITS ???

  2. OPTION 2
    1. CLOSE OTHER LOANS WITH HIGH INTEREST RATES

    2. CREDIT CARD : 30%

    3. MORTGAGE LOAN: 15%

    4. PERSONAL LOAN : 12-15%

    5. CAR LOAN: 9-10%

  3. OPTION 3
    1. CHECK YOUR SPENDING IN NEAR FUTURE, Like Marriage in the Family, Buying a Car, Home Renovation etc. 

  4. OPTION 4
    1. EMERGENCY FUND FOR FUTURE : AVOID GETTING FUND STRAPPED

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