Do You Have to Settle Home Loan Before the Tenure of 20 Yr Ends

Mr.Rahul and Mrs.Rahul  availed a home loan worth Rs 25 lakh for their apartment in Electronic City. They are paying EMI of over Rs 24,000 and have paid there EMI’s for last 4 Yrs Should they continue to do this for the next 16 years. With Mr.Rahul getting a new job offer, Mr & Mrs.Rahul got some extra money in their hands. They decided to Settle the loan amount at the earliest and put their extra money to the best use.
Is this the best option for them? Do they need to pay prepayment penalty? 

Here are all the answers:

Experts says that prepaying is a wise option if the loan has been taken under floating rate as there is no penalty to be Charged as directed by Reserve Bank of India and National Housing Bank. However, if the there is fixed rate of Home Loan interest, one would need to pay a certain percentage of penalty to the bank.
“Whenever you want to settle the home loan before completion of your tenure, the lenders normally charge a prepayment penalty on the amount of loan outstanding. Though percentage of penalty varies from lender to lender but is usually around 2%. However some of the lenders do not charge any prepayment penalty,” as per our Research
Another point that financial experts made was about using up the liquid cash. Harish Shetty, one of the financial advisors in Bengaluru says, “One needs to retain the liquidity to meet emergency financial requirements. So, it is wise to take decision with caution – whether or not or how much to pay as home loans is comparatively cheaper than personal and gold loans.”

Tax benefits at a bay
As the interest component of the housing loan offers tax benefit, the decision whether to go or not for prepayment is also further decided by the tax benefit an individual is availing. “In case, the property is self-occupied any repayment of loan which does not bring down the interest component below Rs 1,50,000 will not have any tax implication as far as tax benefits in respect to  interest component is concerned,” says Harish Shetty.
While, it’s always wise to pay off the loans at first hand but it is wiser to consider other investment avenues which can be more beneficial in every possible way. Here are some of the other options-
–          Tax-free bonds issued by Public Sector Undertaking (PSU)
–          Bonds issued by Non-Banking Financial Companies (NBFCs)

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