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Home Loan Prepayment versus Investment- How and Where to Utilize Those Extra Funds

· Finance,home loan

Buying a home is a major decision that has a significant impact on one’s finances. With the acquisition of a long-term asset like a home, the homeowner has to pay the EMI for the loan for a period of about 10-20 years or longer. The rate of interest charged for the loan depends on the financial profile of the loan applicant and the loan tenure. Longer the tenure, higher is the interest charged. This brings us to the option of prepaying the loan to reduce the tenure.

A lot of home buyers who are servicing the EMI of their Home Loan consider prepaying multiple EMIs together whenever they have surplus funds in hand. Doing so helps in foreclosing the Home Loan but it also takes away any tax benefits the person might be enjoying. Alternatively, they also have the choice of investing on a new asset instead of prepaying the Home Loan.

So, if you are planning to prepay Home Loan or investing in new asset then before making a choice between them, these are the factors that need to be assessed to make the best use of the available funds:

Financial Goals

Some people wish to reduce their financial liabilities and hence choose to prepay their loan. For those who wish to expand their financial portfolio, investment on a new asset is more feasible.

Tax Benefits

An existing loan helps save on income tax and this causes a lot of people to opt for a new asset instead of a prepayment.

Returns

The need for good returns is what drives the choice of investing in a new asset or prepaying the Home Loan.

Read Also - Is prepayment of your Home Loan a better option than investment?

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