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Home Loan Prepayment


Home Loan Prepayment  Do's And Dont's:-

1) Home Loan has Lowest Rate of Interest 7.9 % from SBI Bank as compared to Car Loan 9%, Credit Card 18% Annually & Personal  Loan 11-13% so the First Thumb rule is to part Pay  Highest Interest Loan Running First than Home Loan.

2) Second Factor Home Loan Tax Benefits and it's Alternative Comparative Analysis:-

a) Section 80 C - 1.5 lakhs rebate for Principal Repayment and if this amount can be saved against your PF, Child Education Fees as Section 80 C accommodates many saving options then you can opt to part pay your Home Loan but let's explore down below more.

b) Section 24 - Rebate For Interest Repayment at an amount of 2 Lacs as Loss From Property which is not available against any other option. Now the deciding factor is any alternate investment approach which can yield more returns on this 2 lacs amount.

The alternatives are:-

Mutual Funds/Shares - 12- 20 % return greater than 8.25% home loan but again this is Market Sentient driven and if Market Momentum is higher don't invest in Shares.

2nd Real Estate - If Second investment can be built gradually without any additional loan then it can be better to invest in 2nd property rather paying Home Loan

FD -  Average Rate of interest on Fixed Deposit varies 6.5 - 7 % but after TDS deduction effective Interest Rate will be 5-5.5%.

PPF - Personal Provident Fund also as a similar behavior with respect to returns but has a locking period involved.

3) Third Deciding factor is the stage of Home Loan Repayment as based on Amortization Schedule it's better to pay in Initial Stages of Home loan tenure as in Below Figure.

Initial Stages 0-7 Years  - High Interest, Low Principal 
Later Stages after 7 Years  - Low Interest, High Principal.


👉Know Your Home Loan EMI

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