Housing Loan settlement - some points to ponder
Posted on: 24/Jul/2017 12:51:14 PM
Many individuals who have taken housing loans keep thinking about whether it would be ok closing it by making the entire balance payment on 1 lot.
However, a decision on this should be taken only after considering to what extent this would be beneficial by making an effort to settle the housing loan in advance.
As per the experts in this field, there are 3 aspects to consider in this issue.
Interest ratio: Check on the interest ratio before deciding to settle the housing loan. It would be advisable to calculate whether the prevailing interest ratio works out to be lesser than the one lot balance payment on the housing loan as an investment. If it works out to be less, it would be better to continue paying the housing loan EMIs rather than settling it.
Consider an example – the housing loan is Rs. 10 Lakhs. By settling this, one can save the monthly instalment that was being paid. Let us assume that the interest being saved through this is 8.5%. Suppose the balance amount for settling is invested in some financial institution earning a higher interest. In that case, it would be better to invest that amount rather than settling the housing loan as it means much more revenue and it would be better to continue with the housing loan EMI.
Payment term duration: The term duration period must also be considered in detail before deciding on 1 lot settlement of the housing loan. If the pending duration is 5 years for repayment of the loan, then there are prospects of paying more interest on the principal amount. Only when the interest ratio for the interest part is higher than that of the principal part, it would be preferable to settle the housing loan. There are chances that one may earn better interest by investing this settlement amount elsewhere – however, one has to note that this will be a long-term investment like to 5 to 7 years.
Concession on income tax: Avenues of saving income tax is available when an individual has availed housing loans. So, if the individual comes under the Income Tax payable group, he/she has to consider the benefit of the concession availed for IT. After availing the income tax concession, if there is extra money to be earned by investing the balance elsewhere, it would be preferable to continue paying the EMIs for the housing loan.
