Is it good to have Home loan partial pre-payment or Invest surplus amount in other schemes

POSTED BY Parag ON October 26, 2012 5:59 pm COMMENTS (6)

I am 35 Now. I have home loan of 18 lakhs (current outstanding Principle will be approx 15 lakhs- Tenure remaining 98 months).

I have a current savings of approx INR 7 lakhs. Is it benefitial to do partial pre-payment of home loan ? or if I invest in other options like MF, Fixed Deposit – it will be benefitial? Please suggest.

6 replies on this article “Is it good to have Home loan partial pre-payment or Invest surplus amount in other schemes”

  1. Parag says:

    it is 10.25% from HDFC and remaining tenure is 96 months (EMI 25K)

  2. Dear Parag, what’s the current ROI in your home loan?

    thanks

    Ashal

  3. Kapil says:

    Parag,

    You need to understand few concepts first.

    Every earning individual should have following things first:
    1. Emergency fund (6 times your monthly expenses ideally incldng any EMIs)
    2. Term insurance of 10-15 times your annual income
    3. Health insurance
    4. Personal Accident insurance
    5. Critical Illness policy

    Then comes the investment part:
    You should have goals (like retirement, child’s education, a car for yourself, kid marriage etc) and have investments (in PPF, Mutual Funds etc which you prefer)

    Once you have done the above things and feel that you have surplus money, go ahead and make pre-payments to your loans.

    I hope I was able to clarify myself.

    KK Malhotra

  4. Credexpert says:

    Dear Parag,

    While investing in Mutual Funds could be a good option, we are not in the space of recommending specifics about Mutual Funds. We would be happy to answer any of your queries related to credit.

    Regards,
    Credexpert

  5. Parag says:

    Thanks for feedback.
    It is floating rate loan. I want to keep some amount as safety amount & want to invest remaining amount in good schemes (like MF, SIP etc).

    Please suggest if MF is good option for a period of 10 years. Which MF will be preferable?

  6. Credexpert says:

    Dear Parag,

    What is important is whether you will need the Rs 7 lacs surplus for some future planned need or can this be the contingency fund that you need to build anyway ? If you expect to need the money for either of these two reasons or any other reason in the foreseeable future then you should invest in a savings opportunity.

    If you have already saved for the “rainy day” then prepaying is always a good option. A word of caution whilst you take that decision – if interest rates in the market are going up then you should not prepay what will be a lower interest rate loan. Alternatively if rates are likely to get lower, then you should prepay and reduce the loan burden.Our view is that interest rates will move in a narrow band in the near future.

    Additionally, is your loan a fixed rate or a floating rate loan?

    Regards,
    Credexpert

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