Early Home Loan repayment or Other Investments

POSTED BY Ramz ON May 18, 2012 2:05 pm COMMENTS (9)

Hi
I have taken a home loan of 18L in 2011 from LIC with interest rate of 9.75%(fixed for five years) and then floating.Total tenure is 20 years and my EMI is 17000.

I want to repay the loan with more amount than EMI frequently,during the remaining four years before it moves to floating.

I want to know if it a good choice or should I plan for investment and just continue with normal EMI? Since my interest rate is around 9, I am in two minds.

I am currently 29 years old and my take home is 60K. Will get married this year.

Please suggest me good option in dealing with the loan repayment.

9 replies on this article “Early Home Loan repayment or Other Investments”

  1. Venu says:

    Hi,
    I took a home loan from Sundaram with Kotak Loan Insurance in Mar 2014.
    Now I would like to preclose the home loan.
    My question is that will I get refund of the Insurance premium.

  2. Ashish Agrawal says:

    Hi Ramz,

    Home loan is “cheapest available loan in world” i.e. ROI on Home loan is lowest among all loans be it Car loan, personal loan or even education loan, so it not wise to pay back home loan with your “Surplus money”….You are just 29 & getting married, so just invest this surplus money in some good “well diversified MF” or may be even in liquid fund, where you can get at least ~8-9 post tax return, so you are just paying ~1-2% extra on your home loan, but this investment will allow you to not take any other loan in future like car loan, when you plan to buy car (if you already dont have one) or maybe Personal loan, if you need to buy many things in one go after your marriage…

    Home loan one should repay/part pay ONLY when you feel that you have enough surplus that you dont need to take “any loan” in near future (maybe next 4-5 years)…or else keep investing this “extra money” & create a corpus for yourself,which can be used for big expenses in near future like buying car etc..

    ~Ashish

  3. Dear Ramz, even before thinking of prepaying your home loan, what’s the condition of your emergency funds & your own marriage related expenses? Please clarify. Marriage is fixed or still searching for a dream girl? If marriage is fixed, what about the income of your wife, if any?

    Thanks

    Ashal

    1. Ramz says:

      Hi Ashal,

      I am having two ULIP’s worth 135000(60K + 75K). However the current value would be less may be around 1.2 L and both have crossed 3 year tenure. And I realized that it is not worth continuing , so I am stopping the premiums from this year. So may be it will take some time to get back my actual money.

      As for LIC, total premium paid till date i s around 1.2L. As of today the surrender value id 75K. Planning to surrender it and take term insurance of 1L for next 30 years.

      I am still having some dues of around 3L which I have taken from friends during my initial home purchase. I have time to repay those dues. So actually want to repay some amount and also want to invest in parallel.

      I do not have any liquid cash as of now. But want to build up from this month, as my expenses will ease from next month.

      Marriage is not yet fixed. Still searching :). So no idea about wife income.

      1. Ramz says:

        Also my EPF amount would be around 1.5L till date. However can we include this EPF and ULIP amounts in emergency funds?

        Does emergency fund means pure liquid cash?

        1. Dear Ramz, emergency fund means the liquid money lying in the SB account or at best in liquid MFs.

          You mentioned 1L Rs. term cover. I assume it’s a Typo & you meant 1 Crore. Please inform your ULIP insurers that you are going to avail prem. holiday.

          Thanks

          Ashal

  4. Sachin says:

    Worth of money today is more than same amount after 4 years.
    Means 17,000 paid today has more value than 17,000 paid after4 years.
    INFLATION … INFLATION … INFLATION !!! Hitting the roof…

  5. The 9.75% interest rate will further come down technically due to tax savings. Until your EMI goes up 4-5 years from now I recommend diverting the surplus to Mutual Funds.

    Money must be invested in where it works the hardest.

  6. Anand says:

    I would say both.

    If you have 20k remaining every month, prepay 10k and invest 10k.

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