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Prepaying your home loan | When to prepay and when to invest | Excel sheet included
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- Опубликовано: 15 авг 2024
- This is a topic that keeps coming up at our workplace - should you prepay your home loan? Anmol and I decided to share our discussions with you all. We'll discuss the pros and cons, analyze different scenarios, and help you decide if it's the right move for YOUR financial goals.
There's no one-size-fits-all answer, so we'll not only look at the financial aspect (home loan EMIs, mutual funds) but also discuss the personal circumstances where prepayment makes the most sense.
Play around with this excel sheet below to figure what's best for you! Don't forget to make a copy. Let me know in the comments what you decide to do - prepay or invest?
bit.ly/4ajbSnV
0:00 Highlights
0:29 Intro
1:09 Financial implications
2:04 Excel sheet - Scenario 1
4:43 Excel sheet - Scenario 2
7:33 Circumstantial implications
12:20 Conclusion
Play around with this excel sheet below to figure what's best for you! Don't forget to make a copy. Let me know in the comments what you decide to do - prepay or invest?
bit.ly/4ajbSnV
As a family we never owned a house , my entire childhood was spent switching homes in different colonies across different rented houses hence the urge and emotion to own a house was always there drove the decision to prepay the Home loan and get that EMI off my back. Our Financial decisions are mostly driven by the kind of upbringing and emotion connect one has had over the years. This is how I did it , delayed my car upgrade, switched jobs and yes put all my Esops and bonuses to clear off the debt in 6 years. Mental peace now with tripling up my SIPs.
I have a loan and my mental peace is more precious than micro calculations. So Im definitely looking to prepay the entire amount as soon as possible!
Makes sense! Hard to put a value to peace of mind
OD/home saver changes the dynamic and allows you to hold all your liquid money in a risk free 8.5% interest rate instrument.
This is a great liquid way to manage the debt portion of your portfolio.
I have chosen the overdraft home loan account, where the surplus amount in-hand can be parked there- couple of advantages of parking surplus amount in these accounts
- the home loan doesn’t attract interest for the amount parked
- can be withdrawn in the need of emergency or expenses( school fees); comes with debit card and upi features
- when the markets are reasonably priced, money can be moved into equity in tranches
I am not sure if you took one thing into consideration. So for e.g. if you pay your EMI early, in your case saving about 2.5 years and 1.1 cr you would invest that chunk of money into equity for 14% and get interest from that as well. So the difference would come down to 80 lacs. So the earlier you pay the difference will keep going down as you would start earning 14% on the emi amount which now you are investing and compounding every year instead of paying interest of 8%. Plus the peace of mind will outweigh paying it for 20-30 years.
99 % of the people who i speak to do not understand the fact BANKS take almost all the interest component within the first half the loan period. Thanks to my father who made me understand this when i was about to prepay my home loan.
Well, you can now share this video with them and explain through the Excel how the repayment works 😉
Please make a video on the right age range to marry and have kids - basically family planning after the “launde-baazi” era
Hahah this is such a personal call. My own thinking has changed and evolved about this over the years. Thanks for the suggestion, will think about it!
What I see from your content is that you are specifically talking about a 20 lakh car and a 4 crore loan which is use less for actual lower middle class people. If you making content, make it for the masses and not just 4-5% of indians
Thanks for your suggestion. Though the same financial principles apply in most cases. The Google sheet in the link can be used by anyone irrespective of the amount of loan. The numbers in the videos are illustrative
Hi Pranay, I really liked the last part where you mentioned about allocating debt component of your portfolio towards home loan payment if it exceeds your pre set threshold. May be some more elaboration on that aspect will be helpful. Nevertheless, great content!
Thanks for your comment. This is something I'm doing personally. Safe debt instruments give barely 6-8% pre tax returns. And home loan is at 8.4%.
So with an FD expiring and the money coming in, and since I don't need that liquidity for the next few years, I'm using it to prepay. Don't want to put it in equity because that disbalances my overall portfolio split.
Hope that clarifies?
Hi,
Can you please make a video on various investing options for short term, medium term and long term needs.
I can mention what I use.
Short term (eg: emergency fund) - Equity arbitrage mutual funds
Medium and long term (anything greater than 3 years): uti low volatility index fund,
+ parag Parikh flexi cap fund
I misread the title as "Should you repay your home loan?"
And I was like - nai karne ka option bhi hai?
Hahaha how I wish 🤣
Nice video. Question - do OD loan accounts like Maxgain or Supersaver make sense.. they let you park your extra money there with full liquidity, but higher ROI than FDs?
I haven't used it myself but it sounds like a good option based on the comments I see
Hey guys, nice content. But just a question. In the prepay scenario, do you think that it would make more sense to keep investing the EMI that you would have paid into the same investment plan when comparing the total corpus at the end of 20 years?
Not sure I understand the question entirely but will attempt answering. Assuming you're saying that in the prepay scenario, instead of reducing the duration of the loan, reduce the EMI sum. And using those savings, should you invest in SIP? I think yes you should. It will give higher returns than the interest you save depending on a) duration of the loan left b) your SIP gives a higher XIRR than the home loan interest rate
Hi Pranay and Anmol, good to gave you guys back together.
Another banger content folks!!
No clickbait drama, no stupid suggestion, keeping things real even If it does not make this an entertaining video.
Keep this approach, your cohort of audience will be different and more mature!
Quick question from my side, lets say the left amount in the loan is north of 30-40L (not a lot of amount as per my earning capacity right now), and I am planning to get another bigger house and use this current one for rent, do you guys suggest to pay off this loan and then save for the next house Deposit? will take me like 4 years to accumulate that, during this time no tax benefit if I pay off the loan.
Or use this accumulation of prepone the second purchase and then target any sort of loan pre-payment afterwards?
Note: first house EMI and rent as come to same market value now. i.e. rent I will get is same as EMI I will be paying but there is still risk of, "not having a tenant in tough times" fear in me.
What do you suggest in this scenario?
Let me make it easier for you guys 😀 No need to consider my emotional perspective, just wanna know what you will do in this case?
Thanks for your comment and kind words :)
If 30-40L is not much of a burden that you don't lose sleep over, and assuming that the rate of interest on that loan is competitive, I would personally keep the loan.
Whether you purchase the second house now, or do something else with that money is a separate call altogether basis a lot of factors like overall asset allocation, etc.. but sure, you can use the funds to advance the purchase of the 2nd house :)
The assumption here is that the second house IRR (rental yield + cap appreciation) will beat the rate of interest
The video quality ↗️↗️↗️