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

Budget 2014 Highlights for Saving

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   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

Franklin India Taxshield

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   This fund maintains a quality portfolio of large-cap orientation. The fund manager adheres to a bottom-up investment approach and looks for companies whose current market price does not reflect future growth prospects. Investments are in companies that can drive future earnings growth. Stocks are selected based on the company's financial strength, management's expertise, growth potential within the industry, and the industry's growth potential.   The portfolio is well-diversified across sectors and market capitalisation and follows a blend of value and growth style of investing. The fund follows a predominantly large-cap allocation of over 70 per cent, with small-cap allocation never exceeding 10 per cent since inception.   Performance The fund doesn't dev...

UTI MNC Fund Online

Invest in UTI MNC Fund Online   As markets have turned extremely volatile in the past few months, investing in a quality portfolio with a multi-cap focus has become the need of the hour. One such scheme which has performed well is UTI MNC Fund (launched in 1998). The scheme is managed by Swati Kulkarni. There are four main advantages of investing in the scheme.First, it sharply focuses on multi-national companies across sectors whose products are accepted not only in India but also outside India. Such diversified geographical presence helps the fund manager in maintaining a balanced portfolio. Second, in times when demand is low, such companies whose products have high acceptability, tend to do relatively better than peers. Third, the scheme follows a buy-and-hold strategy in picking companies, which provides handsome returns in the long term. Fourth, the scheme does not have a large cap bias and also has mid-cap MNCs. The scheme has beaten its benchmark indices Nifty MNC and C...

HDFC Equity Savings Fund Online

Invest HDFC Equity Savings Fund Online     HDFC Equity Savings Fund, an open-ended equity scheme, after its repositioning, has announced its maiden dividend as under:   Name of the Fund Dividend Per Unit # Record Date Face Value (per unit) HDFC Equity Savings Fund Re. 1 28 th April, 2016 Rs. 10   # The dividend will be subject to the availability of distributable surplus and may be lower, depending on the distributable surplus available on the Record Date. Pursuant to payment of dividend, the NAV of the Dividend Option(s) of the above Scheme(s) would fall to the extent of payout and statutory levy, if any. The HDFC Equity Savings Fund takes exposure to both equity and debt asset classes like a Balanced Fund, but lowers volatility from equity markets by partly hedging the equity exposure. Lower unhedged Equity exposure ensures lower volatility while the combined exposure of Equity + Arbitrage offers the tax efficiency of equity oriented funds while offering highe...

Mutual Fund Review: Franklin India Taxshield

  It maintains a diversified equity portfolio across sectors and market caps. It tends to maintain a relentless focus on long-term and ignores momentum to a large extent. So, sectors on a high metals and construction in 2007 - will not lead the fund to buy the stocks even at the cost of lower returns. In 2009, the FMCG allocation began to drop towards the year-end, despite the market rallying from March. This again shows the manger sticks to his convictions and does not get swayed by the market. In 2008, it was the third-best performing fund in its category. Instead of resorting to aggressive cash calls (averaged 5per cent), the fund increased its exposure to FMCG and healthcare. The distinct large-cap bias came to its rescue. Though in a rising market (2009), the fund was an average. The majority of the portfolio is held for long and some favourites (Infosys, L&T, Grasim Industries, RIL, Cummins India, Marico) have been around for a long period. The fund takes small position...
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