Understand Your Interest Rate vs. Expected Returns
Compare the interest rate on your home loan with the expected returns from mutual funds.
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Consider Tax Benefits
Home loan borrowers can avail tax deductions. These benefits reduce the effective interest rate on your home loan, potentially making prepayment less attractive.
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Evaluate Your Financial Goals
If your priority is to be debt-free and you value the peace of mind that comes with owning a home outright, prepaying your loan might be the best option. Conversely, if your goal is wealth accumulation for long-term objectives like retirement or children’s education, SIPs might be more suitable.
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Liquidity Needs
Prepaying your home loan ties up funds in a non-liquid asset. SIPs, on the other hand, offer better liquidity.
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Impact of Market Volatility
Mutual funds are subject to market risks and volatility. Conversely, if you are comfortable with market fluctuations and have a long investment horizon, SIPs could offer higher returns.
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Debt-Free Satisfaction
For many, the psychological satisfaction of being debt-free is invaluable.
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Early Prepayment Benefits
Prepaying your home loan early in the tenure can save a substantial amount on interest payments. Assess how much interest you will save by prepaying at different stages of your loan tenure.
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Hybrid Approach
You can allocate a portion of your surplus funds towards prepaying your home loan and the remainder towards SIPs. This strategy provides the benefit of reducing debt while also capitalizing on market returns.
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Disclaimer
The above article is meant for informational purposes only, and should not be considered as any investment advice. Times Now Digital suggests its readers/audience to consult their financial advisors before making any money related decisions.
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