1. While there are different schools of thought on home loan repayment and prepayment, it should be a carefully thought decision of the borrower under his own set of circumstances.
2. From the financial perspective alone, all debts should be evaluated on their interest rates, and any repayment or prepayment should start with the costliest ones.
3. Therefore, costlier Credit Card balance and Personal loans should be the first ones to be prepaid, as a home loan is a low-cost good debt which helps you build an asset, along with tax benefits.
4. Future cash flow needs are important too, so an emergency fund of at least six months expenses (including EMIs) should always be maintained.
5. The ultimate objective in home loan repayment and prepayment should be to become debt-free before retirement.
A few tips:-
1. Starting loan repayment with a bigger EMI is better, if you can afford it, because a longer tenure with a lower EMI will actually increase your interest outgo than opting for a higher monthly outgo for a shorter period.
2. An EMI can, of course, become much lesser if the tenure is raised, but you will also pay substantially more in interest.
3. By prepaying a lumpsum amount from bonus or salary hikes, you can save substantial interest outgo and also reduce the tenure of your home loan.
4. It's better to make lump sum prepayment in the early years of the loan when principal outstanding is high.
5. By paying an extra EMI every year, you can considerably reduce the outstanding principal amount during the total home loan period.
6. Any delay in EMIs severely impacts your credit score, besides penalty.
7. Always maintain an EMI buffer of a few months in a short-term debt fund.
8. You may even close a few investments with lesser interest rate than your home loan rate for having an adequate amount for EMIs.
9. As a thumb rule, for comfortable loan repayments, your EMIs of all loans put together should not exceed 30% of your net income, or 45% if your first home loan is the only loan.
10. Always consider the loan’s interest rate, processing fee, prepayment penalty, etc. to assess the loan repayment and prepayment options.
2. From the financial perspective alone, all debts should be evaluated on their interest rates, and any repayment or prepayment should start with the costliest ones.
3. Therefore, costlier Credit Card balance and Personal loans should be the first ones to be prepaid, as a home loan is a low-cost good debt which helps you build an asset, along with tax benefits.
4. Future cash flow needs are important too, so an emergency fund of at least six months expenses (including EMIs) should always be maintained.
5. The ultimate objective in home loan repayment and prepayment should be to become debt-free before retirement.
A few tips:-
1. Starting loan repayment with a bigger EMI is better, if you can afford it, because a longer tenure with a lower EMI will actually increase your interest outgo than opting for a higher monthly outgo for a shorter period.
2. An EMI can, of course, become much lesser if the tenure is raised, but you will also pay substantially more in interest.
3. By prepaying a lumpsum amount from bonus or salary hikes, you can save substantial interest outgo and also reduce the tenure of your home loan.
4. It's better to make lump sum prepayment in the early years of the loan when principal outstanding is high.
5. By paying an extra EMI every year, you can considerably reduce the outstanding principal amount during the total home loan period.
6. Any delay in EMIs severely impacts your credit score, besides penalty.
7. Always maintain an EMI buffer of a few months in a short-term debt fund.
8. You may even close a few investments with lesser interest rate than your home loan rate for having an adequate amount for EMIs.
9. As a thumb rule, for comfortable loan repayments, your EMIs of all loans put together should not exceed 30% of your net income, or 45% if your first home loan is the only loan.
10. Always consider the loan’s interest rate, processing fee, prepayment penalty, etc. to assess the loan repayment and prepayment options.