If an individual applies for a house loan, he normally examines his present earnings and files for the loan that is appropriate for him. Nevertheless, if the borrower’s business increases, she or he is more likely to accumulate a surplus.
The challenge for such debtors is selecting what to do with their surplus cash.
Should you or invest the money or pay off the mortgage early?
Your answer to this question will depend on a number of factors, including the risks and revenues of making payments on time. Now let us take a look on all the factors that go into deciding whether or not to pay off your mortgage early.
Advance payment fees on house loans
If you prepay a home mortgage, customers will normally be charged a prepay charge by the lender. Your loan agreement you agreed with both the lender determines the amount of these costs. Fees of such a sort typically vary between 2% and 4%. When you clear off your loan early, some lenders don’t charge you a penalty.
Housing finance businesses really aren’t authorized to levy penalty fees if the home loans are carried out at a variable interest rate, as per a circular released by the National Housing Bank, that governs all housing finance corporations.
A prepayment penalty cannot be imposed on a fixed rate house loan if the borrower has paid off the loan with his or her own money.
The impact on your ability to claim an interest deduction under Section 24 influences whether or not you should prepay your mortgage (b). You can only deduct interest up to Rs. 2 lakhs if the house is self-occupied.
As a result, any partial prepayment that does not lower your interest burden to less than 2.00 lakhs has no effect on your tax liability. If the estate is leased out, even so, the choice would be distinct because, whereas the whole interest payment is presently tax deductible, the complete loss underneath the heading “income from residential properties,” that can be set off against one another revenue, will indeed be restricted to Rs. 2 lakhs starting next year for all the properties combined. Consider the tax consequences of a decreased interest outgo as a result.
Working capital requirements for future
Prepaying the mortgage must only be done after careful consideration of your projected cash flows needs, especially emergencies. Since house mortgages offer lower rates than some other mortgages like personal loans and gold loans, one must consider each of these variables when deciding if to prepay or what to prepay. If you need profits in the end after paying off your property, then will have to take out a gold loan or even a personal loan at a considerably higher interest rate.
Earnings on alternative financing routes are expected to be: While assessing the benefits and drawbacks of prepaying the loan, bear in mind the alternative ways you may put your extra cash to good use. It is not a smart idea to pay off the loan early if the expected returns on such assets are identical.
Disclaimer: The views expressed above are for informational purposes only based on industry reports and related news stories. PropertyPistol does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information.