I have a home loan with SBI which started in 2019. The loan amount is 60 lakh and tenure is for 25 months. I am regular on my EMIs and I have approximately 50 lakh liquid in my bank account. Can you please suggest if it is beneficial to clear some of my loan amount from my liquid or do you suggest any better options?

Ans: While it is always a good idea to pay off the maximum loan amount early to save interest on your home loan, there are some things you should definitely keep in mind.

You should always have some liquid amount available handy for regular day expenses or emergencies. Once you deduct this amount, the money available can then be used to prepay your home loan. This will help you save money on interest payments.

You can choose whether to make a bulk prepayment in one go or go for smaller prepayments. From a tax perspective, you can claim exemption on monthly EMI payments which you will not be able to once you pay back your home loan. So it might be preferable to make smaller prepayments instead.

Ans: While it is always a good idea to pay off the maximum loan amount early to save interest on your home loan, there are some things you should definitely keep in mind.

You should always have some liquid amount available handy for regular day expenses or emergencies. Once you deduct this amount, the money available can then be used to prepay your home loan. This will help you save money on interest payments.

You can choose whether to make a bulk prepayment in one go or go for smaller prepayments. From a tax perspective, you can claim exemption on monthly EMI payments which you will not be able to once you pay back your home loan. So it might be preferable to make smaller prepayments instead.

Ans: It is always prudent to prepay your loans, as early as possible, and use the surplus income to more investments which could help you to fund your retirement and other financial goals.

Ans: You have a stable income and a strong cash reserve. Your rental income covers your EMI. The decision to prepay or invest should consider interest rates, tax benefits, and long-term returns.

Understanding Your Financial Position
Home Loan Outstanding: Rs 40 lakh
EMI Amount: Rs 40,000 per month
Rental Income: Rs 40,000 per month
Salary: Rs 1.30 lakh per month
Cash in Hand: Rs 60 lakh
Your cash reserves are sufficient to clear the loan. However, the decision depends on opportunity cost.

When Should You Repay the Home Loan?
If the loan interest rate is high, repayment is beneficial.
If the loan tenure is long, early closure reduces interest outgo.
If you feel mentally stressed with debt, clearing it brings peace of mind.
Clearing the loan eliminates EMI obligations and improves cash flow.

When Should You Invest Instead?
If your home loan interest rate is low, investing can generate better returns.
Investing in high-growth options can create wealth over time.
PPF and NSC provide safe but low returns, while mutual funds offer long-term growth.
Keeping liquidity intact ensures flexibility in financial decisions.

Balanced Approach for Maximum Benefit
Partial Prepayment: Pay off a portion of the loan to reduce EMI burden.
Invest the Remaining: Allocate funds across debt and equity for steady returns.
Emergency Fund: Maintain a reserve for unexpected expenses.
A mix of repayment and investment ensures financial stability.

Final Insights
Clearing the home loan gives peace of mind, but investing can generate better returns. A balanced approach of part repayment and investment ensures financial growth. Choosing the right option depends on interest rates, risk appetite, and long-term goals.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment