Home Loan Prepayment

POSTED BY G Sagar Yadav ON July 5, 2012 4:05 pm COMMENTS (4)

Dear All,

A question came to my mind about prepayment of Housing Loan when you have sufficient funds. I have one Home Loan of about 15 Lacs with 8.5% Floating Interest Rate and 3 yrs old. This rate of interest is bound to increase later. Now I have 15 Lacs in my savings. Should I use this money to prepay the entire Loan or use it somewhere else as investment. Need advise on this. I am sure this doubts will be clear in this forum. Thanks in advance.

4 replies on this article “Home Loan Prepayment”

  1. vij says:
    July 8, 2012 at 10:07 pm

    We need to consider the following factors –

    On the home loan interest, one gets the tax benefit. So, effective home loan rate becomes lower.

    If you invest somewhere the amount of 15 lac, you need to consider the effective home loan rate. I mean, if after investment, you are able to get more than the effective home loan rate, then do not repay.

    One more aspect, if you invest 15 lac and get some return, that income would also be taxable.

    btw, why don’t you think of investing in a second property. If by investing in a second property, if you are able to get better return then repaying the loan, you can consider going for second property.

    Reply
  2. Ashal Jauhari says:
    July 5, 2012 at 7:20 pm

    Dear G Sagar Yadav, the answer depends upon the simple fact – If you are able to earn more than your home loan rate, stay invested. Else prepay.

    Thanks

    Ashal

    Reply
    1. G Sagar Yadav says:
      July 5, 2012 at 8:18 pm

      Dear Ashal Jauhari,

      Thanks for ur reply. May be I could have elaborated my query in terms of investment. When it comes to investment, Where do you feel I can get more than 8.5% guaranteed. Because Its for sure that Home loan will charge not less than this and can even charge more than 8.5% from next month. I am not willing to invest in equity now and plan is to check it for 5 yrs period, whether to go for prepayment or investment. Kindly advise. Thanks

      Reply
      1. Ashal Jauhari says:
        July 5, 2012 at 10:02 pm

        Dear G Sagar Yadav, in the light of the info that you do not want to risk your money in Eq. & the post tax return from debt instruments ‘ll be lower than your home loan rate, it’s advisable to close the loan.

        Thanks

        Ashal

        Reply

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