Home Loan Prepayment Through Investments

Many congratulations to you on your home loan application approval! But keep saving and accumulating to wrap up the loan before time. The interest outgo could equal the loan amount if one continues to pay the EMIs till the scheduled close. The expectedly large home loan amount would anyway make you opt for a tenure of about 15-25 years. But with smart financial planning, you can cut short your loan tenure and reduce your interest payments. So, how should you plan your finances to accumulate the required amount for home loan prepayment, which means the payment of the loan before time? Let’s read on to know the same.

How to Accumulate the Home Loan Prepayment Amount Through Investments?

One should know first the amount to accumulate before figuring out the ways by which they can do so. To know the amount, use the Home Loan EMI Calculator that puts before you the repayment summary. You can see the principal and interest payments across years beforehand using the calculator. Checking the repayment summary carefully would help you figure out the time by which you can prepay your home loan and save a lot of money. All you need to do is enter the loan amount, interest rate and tenure in the calculator available online.

Let’s Get an Estimated Home Loan Repayment Summary

Suppose you’ve got a home loan of INR 60 lakh at an interest rate of 7.80% per annum for 20 years. In that case, the EMI will amount to INR 49,442, which will lead to a total interest payment of INR 58,66,119 over 20 years. So, if you plan to finish this loan in say 15 years, you’ll need to accumulate around INR 25 lakh. Doing so will help you save interest payments worth INR 5.16 lakh.

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Investment Strategies to Accumulate the Desired Home Loan Prepayment Amount

The INR 25 lakh amount may sound too big for you to accumulate. But if you choose the right investment and invest the right amount periodically, you can achieve it. Given the target amount, you gotta trust the power of stocks that can raise your money to unbelievable heights over time.

How Much Should You Invest in Stocks Every Month?

Our calculation says by investing INR 8,000-10,000 per month, you can accumulate INR 25 lakh over 15 years. Assuming the rate of return remains 12% per annum. If you can invest more, do so as there can always be a period of lower returns. So, the extra amount will only help you cover the shortfall that you may face during market downturns. Yes, the value of stocks goes up and down given the developments that take place economically and politically. So, your risk appetite needs to be high when investing in stocks.

But Shall You Purchase Stocks Directly?

The answer to it will depend on your level of expertise regarding stock markets. If you’re a market expert, purchase the best-performing stocks directly by opening a Demat and Trading Account. But if you can’t make those subtle changes to your stock investment portfolio based on market dynamics, trust mutual funds or even unit-linked insurance plans (ULIPs). Investments here are monitored by fund managers who use their market expertise to choose the right stocks to keep you ahead.

Both mutual funds and ULIPs with a list of fund options. Choose from the top-performing equity funds that must have delivered double-digit returns over the years. Check thoroughly the consistency of funds and not go by the massive return they may have generated of late.

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But What Will I Lose with Home Loan Prepayment?

With a home loan prepayment, you’ll lose the tax benefits on both principal and interest repayments up to INR 1.5 lakh and INR 2 lakh under Section 80C and Section 24 of the Income Tax Act, respectively. So, compare the savings of tax benefits and prepayment. See which yields you more savings and act accordingly.

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  • Home Loan Interest Rates May 2022
    Axis Bank6.75% - 7.20%
    Bank of Baroda6.75% - 8.25%
    Citibank6.65% - 7.40%
    HDFC7.00% - 8.10%
    ICICI Bank7.10% - 7.95%
    Indiabulls Housing Finance Limited8.65%
    Kotak Bank6.55% - 7.10%
    LIC Housing6.66% - 7.90%
    Piramal Capital & Housing Finance10.50%
    PNB Housing Finance6.75% - 9.25%
    Reliance Home Finance8.75% - 14.00%
    State Bank of India/SBI6.70% - 6.90%
    Tata Capital6.90% - 8.75%