Tips for making a considered financial decision:-
1. The simplest strategy is to go for the option that has the higher rate, i.e. prepay home loan if its interest is higher or invest in the equity fund if its return is higher.
2. While comparing, you should consider post-tax returns and risks in equity investments too.
3. A home loan is considered a good debt as it helps you build an asset, besides providing tax benefits on principal and interest, which can sometimes change your decision.
4. Prepaying a home loan can become more beneficial if you opt to reduce its tenure instead of reducing its EMI.
5. You should not prepay your home loan if you're in highest tax bracket, else, you can pay off the loan instead of investing.
6. For a self-occupied home, if your loan amount is very large, and annual interest far exceeds tax benefit limit, it may make sense to prepay home loan than investing it, but if rented out, there is no limit on tax deduction of interest.
7. As most home loans are not fixed but at floating rates of interest, in the unlikely event of rates going up, EMI will also rise.
8. Your future cash flow requirement should also be considered when prepaying your home loan, as it is always better to keep some extra money in hand for contingencies, instead of being forced to go for costlier personal loans later for mitigating them.
9. Home loan debts are considered good debts and should not be prepaid aggressively without considering all aspects.
10. Irrespective of whether or not you prepay your home loan, the ultimate objective should be to have a large pool of investments and no debt by the time you retire.
1. The simplest strategy is to go for the option that has the higher rate, i.e. prepay home loan if its interest is higher or invest in the equity fund if its return is higher.
2. While comparing, you should consider post-tax returns and risks in equity investments too.
3. A home loan is considered a good debt as it helps you build an asset, besides providing tax benefits on principal and interest, which can sometimes change your decision.
4. Prepaying a home loan can become more beneficial if you opt to reduce its tenure instead of reducing its EMI.
5. You should not prepay your home loan if you're in highest tax bracket, else, you can pay off the loan instead of investing.
6. For a self-occupied home, if your loan amount is very large, and annual interest far exceeds tax benefit limit, it may make sense to prepay home loan than investing it, but if rented out, there is no limit on tax deduction of interest.
7. As most home loans are not fixed but at floating rates of interest, in the unlikely event of rates going up, EMI will also rise.
8. Your future cash flow requirement should also be considered when prepaying your home loan, as it is always better to keep some extra money in hand for contingencies, instead of being forced to go for costlier personal loans later for mitigating them.
9. Home loan debts are considered good debts and should not be prepaid aggressively without considering all aspects.
10. Irrespective of whether or not you prepay your home loan, the ultimate objective should be to have a large pool of investments and no debt by the time you retire.