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POSTED BY ON February 25, 2011 11:25 pm COMMENTS (2)
Hi, I have a home saver loan (25 lakhs)from Standard Chartered @7.75% fixed (20 yrs). The current outstanding is ~ 19lakhs and the available time is ~ 15 yrs. I have currently Rs. 19 lakhs parked in the home saver account. I am advised against closing the loan as it is a fixed rate loan with an attractive interest rate.
some relevant information are:
– I earn 7.75% interest on the funds parked in the homesaver account. The interest component of the emi (emi is ~Rs. 20500) goes down due to this interest earned. Put in other words, the interest compponent in the emi is the interest on (loan outstanding – amount parked in the loan account)
– Parking a lot of money in the loan account brings overall interest payable down to small amounts. Thus I am not able to make use of the Rs. 150,000 exemption available for IT.
– Interest earned by the money parked in the loan account can be used only to offset the interest on the principal outstanding.
– (Assumption) If money is parked in FD, the effective rate after tax (I am in 30% tax bracket) would be close to 7.75%
What is the best and safe way of investing this money. Please guide.
Thanks and regards,
-SK
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I agree with Ashal and I am exactly the same situation as you.
I have a Smart Home loan with HSBC and I am paying 14.25% currently. This financial year I have already declared 1.5 L as home loan interest so I have parked some money in a liquid fund and I am investing heavily in equity MF. Here I am actually controlling the 1.5L interest outflow.
But from April’11 I’ll make my loan as interest free loan.
Dear Sreekumar, in my view, you should not bother about not availing full benefit of home loan interest for 1.5L Rs. Please try to understand that your interest outgo is almost zero as on date as the outstanding loan amount & surplus amount in home saver is same – 19L Rs. but at the same time, your house is free from loan indirectly & you have full ownership of your house. No onwards to maximise your savings, please start investing the surplus amount into Eq. MFs for next 15-20Y thru SIPs/STP. the Eq. MFs kept for such long term are tax free & you are already aware that Eq. is the best asset class for long term wealth creation.
Thanks
Ashal