Which one to opt first, Paying Housing Loan or Investment?

POSTED BY Rajesh S ON April 11, 2014 1:59 pm COMMENTS (6)

Hi,

I am bit confuse with Simple but Complex question, Which one to opt first, Paying Housing Loan Or Investment for Future(Not Retirement)? Could you please help me chose right one from it?

I am 30 year old married (No Children)and and i have following investments, insurance and Liabilities –

1. Term Insurance of Rs. 1.25 Cr.

2. In PPF, investing around Rs 30k/year.

3. Housing loan from SBI @ 10.25/annum interest rate of 26 lacks for 25 year & now its 24.5 years and only 50K deducted from my principle amount.

4. I have planned to start investment in Mutual funds for Retirement.

And my long term plan like, finishing the home loan ASAP  as well as create corpus for my children(s) for their eduction & marriage.

6 replies on this article “Which one to opt first, Paying Housing Loan or Investment?”

  1. Sanjiv Singhal says:

    You’ll have to balance both your loan and investment. Ideally you should aim to repay a home loan in 7-8 years. This can be done in two ways:
    1. Set up your monthly EMI to an amount that applicable for a 15 year repayment period. Most lenders will allow you to pay higher than the scheduled EMI.
    2. Use bonuses and accumulated sums to make annual principal repayments

  2. ashalanshu says:

    Dear Pravesh, since 2010 till date, almost 4Y have been passed. So we can not recover the interest paid by us in these past years. From here on wards, we can only take corrective actions. If your calculations indicate, prepaying is better, opt prepay. If the calculations suggest, investing is better, opt it.

    Thanks

    Ashal

  3. Pravesh Jain says:

    Hi Ashal,

    I do understood your pointer on value for money which decreases with time due to inflation etc. but what about the interest you have paid between 2010 till 2014 which will be additional money given. Will the value for money decrease more than interest paid by that time? I am still trying to create an example by putting some hypothetical values to see actual impact quantitatively but not able to. Will be great if possible for you within your time limits to provide an illustration.

    Also, other point is to let take this question to a next level.. if your home loan has period of couple of years wherein only interest is paid typically in a construction linked plan, will the answer remain same or should one calculate EMI for that period on its own using some calculation and then prepay atleast that amount to reduce interest outgo.

    Thanks
    Pravesh

  4. ashalanshu says:

    Dear Pravesh, let’s say you took home loan in 2010 with 20K EMI and still paying same EMI. Are you paying the same value of money or it has changed over the period? Please think over my question and answer.

    Thanks

    Ashal

  5. Pravesh Jain says:

    Hi Ashal,

    Will be good if you can also educate us on rationale behind your financial answer?

    Thanks.

  6. ashalanshu says:

    Dear Rajesh, do you want an emotional answer or financial answer?

    Emotional answer, Pay off your home loan ASAP.

    Financial answer, do not close your home loan. Let it continue and divert all your savings towards your future financial goals.

    Thanks

    Ashal

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