Skip to main content

Should you prepay your home loan? Factors to consider

Here are a few factors that you should consider before making the final decision:

Prepayment penalty    

Some banks charge as much as two percent as penalty for repaying the loan ahead of schedule. This fee makes prepayment appear economically unattractive. A penalty actually increases the effective rate of interest paid on a loan in case of prepayment. Explore if you can negotiate and bring down this penalty.

Partial repayment    

Borrowers struggling with high EMI payments can consider this option. Partially repaying your loan brings down the outstanding balance and consequently reduces the EMIs due. Some banks do not charge a penalty for partial repayments up to a certain amount. For example, a few banks allow partial prepayments 3-4 times a year, subject to an overall ceiling of 25 percent of the outstanding loan amount.

Emergency fund    

Do you have an emergency fund to bail you out of unforeseen contingencies? One must set aside a small portion of money towards a contingency fund at regular intervals. An accident or a temporary job loss can strike at any moment. It is very difficult to borrow money again.


   Hence, before even you consider the prepayment option, invest money so that it can be liquidated easily for unforeseen contingencies.

Clear high interest loans    

If you have surplus funds, clear other high interest debts like credit card, car and personal loans before shifting focus on your home loan. If a borrower is unable to make regular repayments on high interest debts, they could pile up quickly dragging him into a debt trap.

Refinancing    

To deal with high interest rates, some borrowers switch to banks lending at lower interest rates. Refinancing at a lower rate with another lender will involve two charges. One is the penalty to the existing lender and the other is processing fee for the new lender.


   Prepaying a loan entirely could be a better option if the sum total of charges of refinancing is very high. Prepay before you switch. This brings down your loan outstanding and consequently lowers the penalty for the switch.

Use windfall    

Prepayment is an ideal option if you have received unexpectedly a huge inheritance or a big bonus. By prepaying a loan ahead of schedule, a borrower saves substantially on interest or cost of the loan. Low or no prepayment penalty could make the option better for a borrower.

 

Popular posts from this blog

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

L&T Income Opportunities Fund dividend

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 L&T Income Opportunities Fund declares L&T Mutual Fund has announced dividend under the following schemes: Scheme Dividend ( R /unit) L&T Gilt Investment-DQ 0.3 L&T Gilt Investment Direct-DQ 0.3 L&T Income Opportunities Ret-DQ 0.31 L&T MIP-Wealth Builder-DQ 0.3 L&T MIP-Wealth Builder Direct-DQ 0.3 L&T MIP-DQ 0.3 L&T MIP Direct-DQ 0.3 L&T Short Term Opp-DQ 0.26 L&T Short Term Opp Di...

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...

Avoid NFOs

  Don't get taken in by the flurry of new fund offers. You will be better off sticking to the tried and tested schemes.   For the past one year, to cash in on the bull run in equities, mutual fund houses have gone on a new fund offer (NFO) overdrive. But experts are unanimous in their advice: avoid NFOs . While past performance is not an indicator of how a fund will fare in the future, it does tell the investor how skilful the fund manager is. This crucial information is missing in an NFO. Not only is there no track record to judge an NFO by, many NFOs are similar to funds that already exist. If the new fund is similar to existing funds, you are better off investing in the latter. Around 67% of the new launches in 2014 were closed-end products. Investing in the NFO of a closed-end fund is doubly risky. In case the fund's performance is lacklustre, a closed-end fund does not allow you to exit. Even though closed-end funds are listed on the stock...

Birla Sun Life Top 100 Fund dividend

  Birla Sun Life Mutual Fund has announced dividend under the dividend option of Birla Sun Life Top 100 Fund . The quantum of dividend shall be R0.85 per unit.   The fund house has also announced dividend under the dividend option of Birla SL FTP Series JT Reg-DQ and Birla SL FTP Series JT Reg-D . The quantum of dividend will be the entire distributable surplus as on the record date.   The record date has been fixed as January 22, 2015. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - Invest Online Download Application Forms For fu...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now