I have a loan from ??30 lakh, which I took for 10 years at an interest rate of 6.9%. Do I have to prepay part of it? I would forgo the tax advantage on mortgage interest.
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It’s always best to pay off debts by making regular partial payments and getting out of debt as quickly as possible. However, a few factors such as the interest rate, the outstanding loan amount, the remaining loan term, and your ability to save each month after taking care of all mandatory expenses can help you decide whether to pay off the debt. in advance or invest the surplus and continue to repay the loan only. via EMI. In your case, the current amount towards EMI could be around Rs. 34,000 and you will also need to keep some money aside for your monthly expenses. So, the first thing you will need to consider even if you are planning on making the partial payment is how much excess you will have on your side after paying EMI and your monthly expenses. If you are investing each month for your financial goals, even that should be put aside. Therefore, you can first look at how much money you will have left to pay off the mortgage regularly.
Considering the current mortgage rate of 6.9% per annum, in my opinion you can continue with the loan and instead of keeping money aside to accumulate for the loan repayment you can invest in ways that can help you generate higher returns than your outgoing interest. Many people prefer to invest money in stocks for long term goals which can yield returns of over 6.9% per annum over the long term. Having said that, you can keep an eye on the mortgage interest rate and when it starts to rise, you can rework this strategy. Under section 24 of the Income Tax Act, the tax benefit on paying interest on a home loan in your case is another reason why you can continue with the home loan. If you continue to repay your loan only through EMI, you will be able to benefit from the tax benefit for more than ??1 lakh each year until the end of six years. Taking all of these factors into account, you can continue with your home loan and use any additional monthly or annual excess to invest instead of currently paying off.
Response from Harshad Chetanwala, Founder of Myweathgrowth.com
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