Now Reading: Compare Home Loan Costs Before Choosing Prepayment or Investment
-
01
Compare Home Loan Costs Before Choosing Prepayment or Investment
Compare Home Loan Costs Before Choosing Prepayment or Investment
Home loan borrowers deciding how to use a bonus or other surplus cash should compare the loan’s interest rate with expected post-tax investment returns, Livemint reports. Prepaying reduces the outstanding principal and…
The Story in Brief
Home loan borrowers deciding how to use a bonus or other surplus cash should compare the loan’s interest rate with expected post-tax investment returns, Livemint reports. Prepaying reduces the outstanding principal and can cut future interest, especially early in the loan tenure, when interest forms a larger part of repayments. Investing in equities or mutual funds may offer higher returns, but carries market and capital-loss risks.
Atul Monga, CEO and co-founder of BASIC Home Loan, says borrowers should first maintain an emergency fund and assess liquidity, taxes, family needs and financial goals. Prepayment can reduce the loan tenure or monthly instalments. Banks cannot charge foreclosure or prepayment penalties on floating-rate home loans under RBI rules, though borrowers should check terms for fixed-rate loans. A financial adviser can help assess individual circumstances.
The Indian Opinion
The lazy claim that every borrower should become debt-free immediately ignores liquidity and risk. The opposite claim, that investing always beats repayment, is just as weak because market returns are uncertain and taxed. A sensible comparison is the loan’s effective cost against a realistic post-tax return, while preserving an emergency buffer. The useful test is simple: after tax and risk, does the investment have a credible chance of beating the home loan rate?
Source: livemint.com
This story was synthesised by AI from the source linked above.
