Owning a house is a real dream of each and everyone as this is a basic need. It gives so much of mental peace and comfort when you have your own home. Government of India also realizes the same hence promoting housing for all and affordable housing initiatives so that each family can stay happily in its own home.
This also gives a great push to the economy as there are over 100 sectors or industries which got benefited due to housing projects. Thus, Home loan is an extremely important component in this whole process. It is the most cost-effective loan as the interest rate is lowest among all other loans like car loans, personal loans, business loans, education loan etc. So if you had taken a home loan then what should be your future strategies.
If you receive or arrange lump sum money which can allow you to reduce the burden of the loan then what should be your prudent call?
Nishant Baraya explains the whole correct decision-making process with an example. There are three options possible:-
1. Pay Off- You can pay off the loan by giving the remaining sum which is due, with any charges if applicable. Hence you can get rid of the loan. But before deciding the same you must look at below factors:-
A. Do you have any other investment instrument which can offer you excess to home loan rate in CAGR terms?
B. In-home loan, the initial part belongs to interest payment more and at the last leg, principal payment is more. Hence if you are at the final stage of home loan tenure and only a few years are left, then you must not pay it off as now there is going to be largely only principal payments.
2. Continue– The decision to continue the home loan should be taken with below factors under consideration:-
A. Do you have any other investment instrument which can offer you excess to home loan rate in CAGR terms?
B. Do you have any important expense to make in the near future? If Yes then don’t stuck your money in home loan prepayment.
C. A home loan gives various rebates under IT section 80 C, 80 EEA & 24 A. So if you are falling in 30% and above IT category as per your slab then you should continue to keep taking income tax benefits.
3. Part Payment – It makes a lot of sense to make part payments in between. So if you have received the sum of money then you should invest some money and at the same time reduce your liability through the part payment of the loan by lowering down the tenure of the loan.
The best way is to make it a process like:-
A. If you pay 13 EMIs instead of 12 in a year then your tenure would reduce to 19 yrs 3 months from 25 years(Initial loan tenure)
B. If you hike your EMI by 5% every year then your tenure would reduce to 13 years 3 month from 25 years.
