Home Loan – Should You Pay Off Or Keep Paying Instalments?

Building a home for oneself is an admirable lifetime achievement, an unrivalled material success, and a priceless experience. Everyone cherishes the initial house they ever purchased. Home loans are typically the favoured method for most of us to accomplish our objectives. 

You receive a Diwali bonus, the large sum you lent has been repaid, or even just a raise as a result of all your hard work at work. On second thinking, you consider paying off your mortgage. Soon, you have a list of things you can do with the money, all of which seem crucial at the same time, but there isn’t enough to fulfil every ambition. The benefits and disadvantages of prepaying a home loan are listed below, nevertheless, in case you do feel that it is a priority that it be closed right away.

1. Reduced interest payments: The obvious benefit of paying off a mortgage early is a decrease in interest payments. When you prepay a sizeable sum, the amount is subtracted from the principal amount, which lowers the amount on which interest is charged and lowers the monthly interest payment (EMI).  If you shorten the term, your house loan will be paid off a few months earlier, but you will continue to make the same monthly payment. For the average person, it is advisable to maintain the same installment amounts while lowering the regular EMI payments. The additional cash might be utilized to prepay the loan if necessary or reinvested in profitable investment schemes.

2. Tax advantage: Section 24 permits deductions for the interest component of an EMI paid throughout a financial year of up to Rs. 2 lakh. Even for someone with the highest tax rate, this Section provides a provision for a tax reduction of about Rs. 60,000 each year. In addition to the standard deduction of Rs. 2 lakhs, first-time purchasers are also eligible for a reduction of up to Rs. 50,000 through Section 80EE for the interest component. Advantages of up to 1.5 lakhs are available under Section 80C for the major component of the EMI.

So, after careful analysis and consideration of these relevant facts, it is generally better to refrain from making aggressive prepayments on a mortgage. It is important to invest wisely, identify lucrative debt or equity investment possibilities, and achieve a higher return than the tax-adjusted rate of interest paid on the mortgage. 

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