Why pay lakhs of free interest to the bank? Should you repay your home loan early or invest the money somewhere else? Clear the biggest confusion like this

Nowadays, a home loan has become necessary to buy a house, but repaying it before time can be beneficial as well as harmful. It completely depends on your financial situation, so it is very important to know its advantages and disadvantages.

In today's rising inflation, people usually have to take a home loan to buy a house. Different banks have their own interest rates for home loans. But do you know that taking a home loan has both advantages and disadvantages? Yes, repaying a home loan before time can be beneficial as well as harmful in some cases, this decision depends on your personal financial situation, so now, here we will tell you about some of its main advantages and disadvantages.

1. Huge savings in interest:

This is the biggest advantage of repaying a home loan early. In the initial years, the majority of the home loan EMI is interest. But if you repay the loan early, you can save lakhs of rupees in interest, which reduces your total cost significantly.

2. Freedom from debt and mental peace:

Having a loan on your head for a long time causes stress. So after the loan is over, you feel financially free and can use that money for other goals, such as investment or children's education.

3. Better credit score:

Repaying the loan before time improves your credit score. This shows your good financial habit, due to which you can easily get another loan in the future.

4. Saving money:

After the loan is over, the money that goes into the EMI every month remains with you. This leaves you with more money to spend and invest.

Disadvantages of repaying home loan early

1. Loss of tax benefit:

Home loan is tax exempted under Section 80C (on principal) and Section 24 (on interest) of Income Tax. But if you repay the loan early, you stop taking the benefits of this exemption.

2. Lack of liquidity:

Paying a large amount at once to repay the loan early can end up wiping out all your savings. If you do not have an emergency fund, you may suddenly be short of money when needed.

3. Missing the opportunity to invest:

Home loan interest rates are usually lower than other investments (such as mutual funds or stock market). In such a situation, instead of repaying the loan, you can earn more by investing that money somewhere else.

4. Prepayment penalty:

If your home loan is on a fixed rate, then the bank can charge you some penalty for repaying the loan before time. However, there is no penalty on floating rate home loans as per RBI rules.

That is, if you have extra money and you do not want to take risk, then repaying the loan is a good option, but if you can earn well and are ready to take risk, then investing can prove to be better. It is very important to carefully assess your financial situation before taking this decision. (Note: This article is for information only and should not be considered as investment advice in any way, suggest consulting financial advisors for investment)

5 FAQs

Q1. What is the biggest advantage of repaying a home loan before time?

There is huge saving of interest and quick relief from debt.

Q2. Is it always right to repay the home loan early?

No, if the investment is giving more returns then it is better to continue the loan.

Q3. Does the bank charge on home loan prepayment?

Yes, some banks charge prepayment charges, especially on fixed rate loans.

Q4. What are the tax benefits of taking a home loan?

Income tax exemption is available on both interest and principal amount.

Q5. Who should repay home loan early?

Those who have stable income and other investment options are giving low returns.