Loan Vs other Investment ?

POSTED BY Neel ON February 18, 2013 10:57 am COMMENTS (18)

Hi All,

Can you please some one expert guide me regarding Loan and saving in other investement.

I have 12 Lac Loan from SBI for 20 Year so giving EMI 12000 something at 10% around.

Now I can save extra 20K per month and have some surplus amoun ( 1 Lac) so should I clear Home loan as soon as I can Or should I invest in other instrument like Gold, Stock or any other ? Please guide me to decide. My thinking is if get more than 10% pa in any saving then I should go for it other wise I shoud I pay my Homeloan as soon as possible.

Also I am not taking any home loan benefit since claiming HRA which is more compare to Home loan interest. Thanks





18 replies on this article “Loan Vs other Investment ?”

  1. Credexpert says:

    Dear Neel,

    The answer to your query depends on your cash flows. If you presently have the surplus funds then we would suggest that you repay your home loan as this would help in reducing your EMI burden.

    On the other hand, if you get more than 10% pa in any savings then make sure that the difference is at least of 1-2%. But ensure that you do not use the surplus for speculative purposes like equity etc. instead you could use it for investment in gold.


  2. Dear Neel, please invest from your surplus amount if you can earn more than 10%. If not repay. That’s a simple answer. Personally I w’d like to invest more to let compounding work in my favor. Your EMI is same for all these years, but what about the loss of purchasing power of your money. 10000 Rs. in 2010 is not the same 10000 Rs. in 2013. For example in 2010, @ 50 Rs. per liter, you could purchase 200 Liter petrol. But now in 2013, @ 75 Rs. PL, you can not purchase more than 133.33 Liter petrol. Which is equal to 6600 Rs. of 2010 roughly.

    So Invest the surplus & let the compounding do it for you’ll be my choice, still you are free to follow your own call to repay the loan.



  3. arkrangarao says:

    May be another Home? I haven’t really calculated your income vs loan details. But how about this idea. I heard for a kid to do MBBS after 18 years , she would need 1 cr (assuming currently it is 20L). I think some sort of property investment can take you there .. But are the other safe options that can generate such returns ?

    1. Ramesh says:

      I would suggest you do some more search and analysis about asset classes.
      There is no asset which will give you more return with safety, unless you are very confident about the intrinsic value of that asset (=the basic of Value Investing).

      Your starting questions are very decent, but the best way forward will be your own research on these.

  4. Neel says:

    Hi All,

    My question still unanswered that should I pay my home loan as soon as I can or should I use my saving amount somewhere else ? and if so whar are the options comparing home loan rate 10% from SBI ? Please reply. Thanks

  5. Dear Red Devil, there is no problem to claim both benefits as in your situation. You need not to show the rent for your own property.



    1. Red Devil says:

      Thanks Ashal.

  6. Red Devil says:

    Hi Ashal,

    Had a query related to this question, I am claiming IT benefits for the home loan principal and interest. I stay in a rented apartment, which happens to be 25 kms from my own home due to work and travel constraints. So I have been claiming HRA as well for my rent. My parents are staying in my home.
    Any issues with this, do I need to show rent from my property if its not self occupied and in the same city.


  7. Dear Neel, if your own house is on rent & you are declaring the rental income, you may claim interest benefit also. No matter both houses are in same city or different cities. Your take please.



  8. Neel says:


    I can not get both benefit since both house ( Loan + rent) are in same city (like NCR). I think there is some distance calculation crieria where we can not get benefit from both side.
    So now my quetuin is only that should I clear home loan amt as soon as I can ? and after home loan clear then I should think abt other investment instrument or can you suggest good investment instarument ?

  9. Dear Neel, as you are claiming HRA benefit for your own rent paying, It’s OK from taxation point of view. At the same time, as you are not living in your own house & it’s on rent, you may claim home loan interest benefit also on this one. As it’s a rented property, You w’d have to add the rent in your income but the full interest ‘ll be available for set off.

    For exact calculation of your home loan benefit, I need following info.

    Property Tax of your loaned house
    Home Loan interest for current FY i.e. 2012-2013

    Also what about 80C limit of 1L Rs.? Is it over or not. How you are calculating & claiming this 1L limit?



  10. Neel says:

    My relative living in Loan amout house giving some (3K per month) for rent while I am living on separate house where paying 14K per month. sorry for confusion. Hope now case is clear to advice. thanks.

  11. Dear Neel, for your own house, how can you claim HRA benefit? Am I missing something here?

    Please clarify.



  12. Neel says:

    hi , I am living my own house for which I am paying home loan.

  13. dear Neelam, are you living in the same house i.e. on home loan or you are living on rent?

    Please confirm.



  14. Neelam Soni says:

    In HRA , I am getting 1.6 Lac pa while Interest of home loan of 12 Lac (10%) is less compare to HRA so claiming HRA benefit and take home is 70K around.
    I had invested in stocks but got negative return so I think first clear Home loan where I am giving 10% interest and there is no investment instrument which is giving solid 10 % except stock if luck support and no one know abt Gold future becos already increased a lot ..Plz share yr views. thanks.

  15. Dear Neelam, May we discuss your HRA & home loan thing in details?



  16. “My thinking is if get more than 10% pa in any saving then I should go for it other wise I shoud I pay my Homeloan as soon as possible.”

    This is right. If your emi is less than 30% of your take home pay then I see no need to prepay the home loan. By investing what you can you can create wealth over the long term. However is important to have enough life and health insurance, contingency fund, list your financial goals and ensure you save enough. If you can do this comfortably with your take home and pay the emi there is no need to worry about the loan.

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