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ET Wealth

Should you invest your money or use it to prepay home loan?

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Hiren

Hello Sir,I am paying 0% interest on my home loan EMI as I have interest saving home loan and full outstanding balance of 9Lacs. If I continue as it is, it will take about 6yrs time to pay off my home loan without paying any interest. The moment I will take the money out I will be charged with 9.9% interest for home loan.Shall I invest this money or keep as it is?

Rohit Mehrotra (Noida)

Delay in repayment will increase the net cost of your property as interest is being paid on regular basis. The day you decide to sell the property, it would have costed (net) high and you would not be getting much add on return....any clarifications on this???

G Kumaran (Chennai)

Better finish the loan amount ASAP

Venkat Chari (Hyderabad)

This is a useful article giving full details of advantages/ disadvantages and options available for reinvesting the amount.

paras (Mumbai)

The above comments are good, but it would totally depend on the person who has the loan. For a person in the 30% tax bracket it may be feasible to continue until he gets that benefit, but for a lesser salaried person it is better to repay the loan at the earliest and free himself of the debt. Also it would help him plan for a second home which then can be given on rental and can act as a secondary source of income.

simple. can you make more than what you are paying?

G Ananthapadmanaban (Bangalore)

initially high tax benifits as the interest component is high. after 50% of payment period Principal deduction on the rise and total tax benifits decrease. This is the time you can think off. Another vision is pay in the first two years , you stand to gain good reduction in EMI period

Very informative. However, there are no suggestions for the retired persons - whether they should invest their retirement benefits in the real estate like buying an additional flat or what are other options available for this segment.

Madhu (known)

Some good points made, but ignored the tax benefits on principle repayment of the loan which comes under 80 C. It can help you plug the gap you have to meet 1.5 lk under 80C.

Vivek (Pune)

Some good points made, but ignored the tax benefits on principle repayment of the loan which comes under 80 C. It can help you plug the gap you have to meet 1.5 lk under 80C.

MK (India)

Always one must understand that loans are good ONLY for businessmen - quote and quote. A salaried person has to CLOSE the LOAN at the earliest. Else, he or she i.e. salaried person is loosing money at a faster rate by paying interest, that are usually way higher than inflation. First hand information - from a personally known police officer reveled that more than 70 percent suicides and deaths are due to loans. So dear salaried friends, keep away from loans and lead a safe and happy and healthy life along with your family members. God bless all.

mahendra kumar Nayak (Bhubaneswar)

In case of overdraft facility it makes sense to park all your surplus funds in the account. Other cases it is more sense to keep some savings instead of repaying the home loan.

nice information..if you are employed its better to stay with regular EMI and invest the bonus into a better return

Shashi Rewal (Paonta Sahib)

Payment with emi to have tax benefits ,seems to be better options

If you use the money to repay loan you are sure of saving interest amount; instead if you invest money you may gain or lose and no body knows for sure. Continuing to pay interest for claiming IT rebate doesn''t make any sense.

naveen (bgl)

it makes sense to clear the existing HL and try to reduce bring it down below 10lac so that you can plan for a second home. Keeping in mind the ROI is also very important.

Raptor S (India)

Lot of people disagree with this article. Current Home Loan Rate is around 9.5%, but you can earn 12-15% on Mutual Funds via SIP in long term which is more beneficial than pre-payment but this route come with risk. Also unfortunate incidents like death should be covered by term plan.

It is beer to prepay the loan in place of investing anywhere.

Article seems to be good but i dont agree bcz its better to repay all the debts/loans when money is in hand instead of investing money in some other schemes. Normal citizens cannot live happily with the debt especially large debts like home loan

Brijesh (Pune)

This is a nice article. Thanks

ashok khurana (Jaipur,)

It all depends on the ROI at which Loan is running.Taking into account the Tax Benefits and the rate of inflation at the time you want to repay , it is always better to keep your liquidity and use the surplus for investing in other options fetching higher rate of interest than being paid on housing loan.If the surplus is on the much higher side even after investment then the closure of loan or part repayment may be considered to save the interest component and monthly take-home.

amit (chennai)

easily said than done. in equity u would lose even your principle and in fixed income the differential is not much , hence prepay as soon as u can and become debt free.

good article.. consider another case when the house is on rent and entire interest paid is tax free..

Joy (Mumbai) replies to Piyushg

But the income from rent is taxable too - leaving aside a small portion which can be excluded from taxable amount. So overall you are increasing your taxable income on on hand and reducing some tax on other!

Piyushg replies to Joy

you are right Income from rent is taxable.. that tax one anyway will have to pay if not self occupied..otherwise have to pay tax based on nominal rent.. overall it depends on the loan/interest amount.. and how much rent one is getting.. if housing loan amount is more than 35 lacs then rebate on full interest paid would be beneficial..

Its all based on one''s comfort zone. If a person is risk averse and doesn''t understand equity markets, prepaying the loan to get peace of mind is the obvious choice !!

satya (hyd)

I am investing in top rated 5 mutual funds for last 2 years , forget about interest even I am in loss of 2% to the principal amount but analyst say MF SIPs give 12-14% returns still I will continue my MFs through SIP next 3 years let me see how this investment will return.with my experience better to pay off the load as much as possible keeping 6-12 months emergency fund in hand.

My opinion one should always avoid taking loan.

You have focused on tax deduction available to individual on interest payment of home loan but forgot 2 things1) Even though cost of borrowing is brought down because of tax deduction still interest is outgo. Hence to save 30% on interest on loan you r paying 70% to bank. Example if Interest paid is 2 lack then your deduction in net tax liability will come down maximum to 60K but what about 1.4 lacks paid to bank?2) Opportunity cost-Check if earning from alternate sources like equity/MF is lower than home loan interest it make sense to pay home loan as you r paying higher interest on principle amount.

not withstanding the magic advise of self styled advisors, as long as your money is in FD vis-a-vis Home loan, better to pay off loan...keep some for rainy day and if one understands Stocks, invest in them..but be prepared for the risks - reward trade-off.

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