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Do Not Prepay Home Loans!

Hi all, This is in response to a survey I found on the app, where people voted mostly on reducing Tenure by prepaying their home loans. As someone who works in lending myself, and in the light of the funding winter extending a few more Quarters, I would urge people to shore up their finances and keep control of your liquidity. Be very careful when prepaying Home loans: 1. Loan is a service for which interest is a cost. The deciding numbers to prepay are the differential interest outgo (Loan rate-Debt fund rate) / 12 as a proportion of your monthly expense. It comes to around my monthly 1700 Rs for 10L of outstanding. 2. DO NOT look at the total interest outgo. That is a misleading figure. Prepaying loan to save total interest over 10y is like selling your car 10y earlier to save parking costs or selling your TV to save Netflix charges. 3. Prepaying is irreversible. If you run into cash crunch later, most probably, your financial standing and ability to get loans would decrease. Better to not prepay and enjoy the flexibility. Posting the parent link below.

Is it better to

https://share.gvine.app/fSZ7kA2J5C7VQ9RVA

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Elon_Musk

X.com

a year ago

Don't agree with the points made. The interest is not just a cost it's a debt trap. If you can make a higher return after taxes than your loan interest then be my guest and keep making minimum monthly payments for as long as you want. But if you can't then it's better to pay early if you can afford it. And on the liquidity & cash crunch... How much do you want to save for emergencies 10-20 lakhs is enough imo. Not to mention if you take a floating rate you open yourself to the risk of interest rates going up in a longer tenure
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majboormajdoor

Stealth

a year ago

Interest is a debt trap if you don't pay EMIs on time.
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majboormajdoor

Stealth

a year ago

Regarding emergencies, if you have a family with parents and kids, your expenses are bound to be higher and 10-20L would not suffice. You have HL EMIs, property taxes, maintenance etc to pay already. Better to have access to that cash in debt funds which yield 6.5-7% than prepaying. Again, it is an irreversible decision and better to consult a planner before
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Rightwhat22

Stealth

a year ago

Don't agree as it depends. Basic Finance 101 says you shouldn't take loans but we have to for many reasons. If you take a loan or debt try to close as soon as you can based on your financial situation. And for locking part of funds, there are loans like SBI Max gain which is like a overdraft and you can withdraw the amount in case of emergency and pay back once you funds.
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majboormajdoor

Stealth

a year ago

Basic Finance 101 has never said don't take loans. Again, what I am saying is counter intuitive and against what our biases tell us, but try to decide by the actual numbers of what it is gonna cost you. Then you can decide.
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