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POSTED BY ON August 1, 2012 5:09 pm COMMENTS (3)
I have housing loan of Rs 10,50,000 with SBI at fixed rate of 7.25% and have 13 more years to pay. Am paying 10500 per month as EMI. I would have paid 16,38,000 to Bank from today till end of the term. Is it a good idea to repay the loan with my PPF amount and save/ invest the EMI amount? Pls guide me.
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Dear Bhaskar, Are you really paying 7.25% interest rate? I do not think so. Why? The answer lies in the income tax saving. Your effective outgo in terms of interest is less due to tax saved. Based upon your slab rate, please calculate your effective interest rate.
Some more thoughts – from here on wards, your salary ‘ll keep on increasing & so do the inflation. Now do tell me, due to the impact of inflation are/”ll you paying same value of money or less over the years?
Also your PPF is earning 8.8% ROI as on date where as your home loan’s effective rate is way below 7.25%. So here again keeping PPF alive is a wiser option for higher earning than the interest you are actually paying.
Thanks
Ashal
@Bhaskar kantur
You have a fixed rate @7.25% which is not easily available now. If you feel that your income stream is not steady(meaning fear of job loss or salary cut) etc. Then it will be wise to foreclose the loan.
If not continue to pay the EMI or increase a bit to bring the term down and continue with your other investments with left out money. You can pay additional income like bonus as partial pre-payment.
You can think of investing this PPF money in other instruments which will earn you better income like Equity MFs or just extend the PPF for 5 more years. As of now this 8% from PPF is tax free and will give you 0.75% more than your home loan out go.
If i were you then i would have used my PPF money to pay the loan and rather invest the EMI money somewhere else. If not the EMI amount would let me to lead a comfortable life atleast.