Home Loan: A huge amount is required to buy a home, so most people prefer to take a home loan for the same. There are also some advantages of buying a home by taking a home loan. Buyers can save money on rent by moving from a rented house to their home. Income tax benefits are also available on the interest paid on the home loan and repayment of the principal. Home loans are generally cheaper than other loans. Some financial institutions are offering home loans with a repayment tenure of 30 years.
Even though the interest rates on home loans are lower, but if the repayment tenure is longer, then the total interest payout will also be higher. Suppose you get a large lump sum amount over the long repayment tenure of the home loan or your regular income increases significantly, how to use this surplus fund? Should this amount be used to repay the home loan or should it be invested elsewhere? Experts believe that this decision depends on different circumstances.
According to experts, if you have surplus funds, you should repay your entire loan in these circumstances:
unstable career
If your career is going through ups and downs and you are apprehensive about the future, it would be a better decision to reduce the future liabilities by repaying the home loan early whenever the opportunity arises.
If the EMI amount is high
If the EMI amount is very high as compared to your monthly income (say, more than 40-50 per cent of the income), then it is better to use lump sum amount to reduce the EMI amount.
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Know under what circumstances it is better to invest the lump sum amount somewhere instead of repaying the entire loan
having a low interest rate
Generally, the interest rate on home loans is lower than most other loans, so investing the lump sum amount can generate higher returns.
Long term home loan
Home loans generally have a tenure of more than 15 years, so you can invest your money in long-term assets like equity and get higher returns than the home loan interest rate.
Tax benefits
People do not buy houses to save tax, but it is also true that you get tax exemption on home loan. That’s why you should think about whether you have to repay the home loan in full or make a partial payment. In this situation, it is better to take advantage of the tax benefit instead of making a lump sum payment. In such a situation, you can use your lump sum money elsewhere.
(Article: Amitava Chakrabarty)
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