When part prepaying home loan…
Is it better to
As someone in finance, if your interest rate is lower, then Do not prepay and if you do, lower your EMI.
If you are well financially, loan shouldn't be a mental liability, it is a flexibility. Always keep the liquidity high and available,
If you have enough money to pay your EMI,why pay interest for a longer period on an amount. EMI reduction looks like a scam to me if you are prepaying a home loan.
It makes sense if u would like to keep the loan on which has the least interest rate and effective interest rate is much lower if u use it in old regime of tax.
Even if tax rate is lower, you may reduce your tax liability, but you would be paying an interest, which is a higher liability.
Better to reduce tenure. Once you reduce tenure, your total interest paid on the loan will decrease. Whereas, if you reduce EMI, your interest paid would still be more than compared to the previous point. Since, tenure would be same.
Reducing tenure, reduces the total amount that you will pay to bank, since tenure is less you will pay interest for less time, thus less money.
EMI reduction doesn't makes sense to me.
Yes I understand and this looks like the popular option. But there could be 2 reasons to reduce EMI:
- You can invest the difference
- It’s possible that u get a pay cut in future or have to be off work for longer term (so will help maintain ur budget)
You wouldn't want to do that.
DO NOT look at total interest outgo. That number is misleading. Interest is a cost, so look at monthly outgo.
Loan is a service, interest is the cost you pay for that. Prepaying home loans of 8-9% interest rate is like selling your car to avoid the monthly parking cost!!!
Prepaying is also irreversible decision. Please consult an adviser before you proceed.
As someone who values peace of mind, just prepay as much as you can and don't reduce EMI --> get rid of the damn loan..when it comes to loans don't do financial math, just finish it.
This is a fun thread.
OP says you should reduce EMI so that you can invest the difference for higher returns, and get more tax benefit.
This makes absolutely no sense.
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If you are making a higher post-tax return than your home loan elsewhere, why would you prepay principal in the first place? Just invest it all?
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You have cash in hand. You want to pay more interest over the loan cycle to the bank so that you can get a 30% rebate from the taxman.
Go ahead and give up the rest 70% from your pockets.
No wonder banks make like 15k+ cr profit a quarter nowadays
That’s one of the reasons I have come across for reducing EMI and was keen on understanding its validity. The other thing, people do try to keep home loan ongoing even if they can pay it off bcoz interest is low. So ya they’re investing or doing smthng else with that capital and not prepaying.
Looking at the replies, as someone who works in lending, I would urge people to consider to not prepay.
DO NOT look at total interest outgo. That number is misleading. Interest is a cost, so look at monthly outgo.
Loan is a service, interest is the cost you pay for that. Prepaying home loans of 8-9% interest rate is like selling your car to avoid the monthly parking cost!!!
Prepaying is also irreversible decision. Please consult an adviser before you proceed.
Emi never get reduce in pre payment only tenure reduces
