Home loan repayment and things to consider
Updated: Oct 3, 2019
Buying a house is one of the biggest spending of one's life.
It sucks out all the available liquid funds. A new monthly commitment i.e Home Loan EMI begins.
We are traditionally and culturally tuned to repay the loan whenever there is any available surplus in the form of annual bonus or annual increment.
A few hygiene factors to be considered before prepaying the home loan:-
Have I taken a Term Insurance Plan equivalent to the loan taken? (If not , do not delay any further)
Do I have an adequate contingency fund equivalent to atleast 6 months of my living expenses? (Ideal is 12 months).The objective of a contingency fund is NOT RETURNS but Quick Liquidity at the time of emergency.
Have I fully provided for my family goals like Children's Higher Education, my Retirement etc.?
Have I first prepaid my other loans like car loan, personal Loan, loan against property? (If not, PREPAY IT FIRST)
All the above 4 points are to be considered first, before beginning to start repaying the home loan.
Mr Jaspal had taken a 50 lakh home loan, period 20 years, 9% interest, paying an EMI of Rs 44,986. He wanted to get rid off this loan burden as soon as possible. We advised him to treat it like any other goal and give a 10 year period for its fulfillment.
Along with his other investment for retirement, children's education, he started a 10 year SIP for the Loan Repayment Goal.
We calculated at the end of 10 years, his outstanding principal amount will be 36.94 Lakhs. That became the target corpus to achieve. He started an SIP of Rs 13,500 for 10 years to clear off this loan and become debt free.
And most importantly not neglecting other critical needs like Contingency Fund, Retirement, Children's Higher Education, etc.