prepay home loan vs making investment ?

POSTED BY Srilatha Guda ON February 20, 2014 7:07 pm COMMENTS (4)

I have a outstanding Home loan of 11 Lakhs. I have 9 Lakhs in my savings account. Should I invest the money and continue with the home loan or should I prepay my home loan. Home loan interest (10.5) HDFC BANK.

4 replies on this article “prepay home loan vs making investment ?”

  1. Raja says:

    Dont prepay in one shot. Home loan gives you tax benefits, but only up to a certain point, after which it loses its charm. This will typically happen once the principal portion is much more than the interest portion. Once your EMI consists of around 70-80% principal and rest as interest, you can keep paying EMI and use your surplus money for other investments. But remember to keep the EMI constant with decreasing period. This will keep increasing the principal component with each EMI and you will be paying off the loan faster. If you still have surplus money, so pre-payment of 1-2 extra EMIs once in a while to bring down the period further.

  2. Credexpert says:

    Dear Srilatha,

    If your income is stable then, you should continue with the EMI. You would be eligible for tax benefits on the same.

    Further, if the home loan is availed on fixed rate basis then there would be a prepayment charge involved. Again pre paying the home loan will shrink your personal balance sheet since only the house will remain as an asset with you. On the other hand, if you invest the money elsewhere then your asset base could diversify into shares, mutual funds or other instruments, which can be sold in case of emergencies.

    Ensure that your investments do not grow at a rate lower than the one paid on the home loan interest.

    Regards,
    Credexpert
    http://www.credexpert.in

    1. rahul123 says:

      Continuing your EMI to save tax is not always good option. You are losing money either to bank or giving it to governement.

      I will suggest to prepay the home loan, atleast you should use 50- 60% of corpus in prepaying.

  3. ashalanshu says:

    Dear Srilatha, if you w’d have to invest the 9L Rs. where w’d you like to invest it?

    Thanks

    Ashal

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