28-Year-Old With Stable Job Seeks Advice: How Can I Finish My Home Loan Faster?

Ans: For anyone looking to buy a new home, there are a number of options available in the market. However, no matter where you get a home loan from, the tenure of repayment is likely to be roughly around 15-25 years.

Repaying your home loan quickly is a very smart move as you can stand to make huge amounts of savings on interest outflow. By making small regular prepayments over and above your EMI every month, you could stand to save lakh of money in interest payments and repay your home loan months in advance.

The facility to make prepayments without any extra charge should be a key criterion in selection for a lender.

Ans: For anyone looking to buy a new home, there are a number of options available in the market. However, no matter where you get a home loan from, the tenure of repayment is likely to be roughly around 15-25 years.

Repaying your home loan quickly is a very smart move as you can stand to make huge amounts of savings on interest outflow. By making small regular prepayments over and above your EMI every month, you could stand to save lakh of money in interest payments and repay your home loan months in advance.

The facility to make prepayments without any extra charge should be a key criterion in selection for a lender.

Ans: Great to see you’re focused on your financial goals. Let’s dive into a detailed plan to help you finish your home loan ASAP and accumulate Rs. 2 crores.

Understanding Your Current Financial Situation
You both have a combined monthly income of Rs. 1 lakh. That’s a solid income stream. Your expenses, including rent, are Rs. 25,000. This leaves you with Rs. 75,000 every month for other financial commitments and savings.

Home Loan Strategy
Prioritizing Home Loan Repayment
Your home loan of Rs. 40 lakhs is a significant commitment. Paying it off early can save you a lot in interest payments. Here’s how you can tackle it:

Utilize Surplus Income: You have Rs. 75,000 left after monthly expenses. Consider allocating a portion of this surplus towards prepaying your home loan.

Increase EMI Payments: If possible, increase your EMI payments. Even a small increase can significantly reduce the loan tenure and interest burden.

Lump Sum Payments: Whenever you receive bonuses, incentives, or other windfalls, use them to make lump sum payments towards the principal. This will help in reducing the principal amount faster.

Tax Benefits: Don’t forget to take advantage of the tax benefits on home loan principal and interest payments. This can help reduce your taxable income, providing more funds for loan repayment.

Investment Strategy for Wealth Accumulation
Monthly SIPs in Mutual Funds
You’re already investing Rs. 12,000 per month in mutual funds. That’s a good start. Let’s optimize this:

Diversification: Ensure your SIPs are spread across various categories like large-cap, mid-cap, and small-cap funds. Diversification helps in balancing risk and returns.

Increase SIP Amount: As your income allows, gradually increase your SIP amount. This will help in accumulating wealth faster through the power of compounding.

Avoid Index Funds: Actively managed funds can outperform index funds as fund managers make strategic decisions based on market conditions. These funds adapt to market changes, aiming for higher returns.

Benefits of Regular Funds
Regular funds come with professional management. Fund managers make strategic decisions to maximize returns. While direct funds save on expenses, regular funds can potentially offer better performance due to expert management.

Compounding Effect
The power of compounding is your best friend in wealth accumulation. Reinvesting returns over time helps grow your wealth exponentially. Ensure your mutual fund investments are set to reinvest dividends and capital gains for maximum growth.

Emergency Fund and Insurance
Building an Emergency Fund
An emergency fund is crucial. It should cover at least 6-12 months of your expenses. Given your current expenses, aim to set aside Rs. 1.5-3 lakhs. Keep this fund in a liquid asset like a savings account or liquid mutual fund for easy access.

Insurance Coverage
Health Insurance: Ensure both of you have adequate health insurance coverage. Medical emergencies can drain savings quickly, so a comprehensive health plan is essential.

Life Insurance: Adequate life insurance provides financial security for your family in case of unforeseen events. Term insurance is a good option as it offers high coverage at low premiums.

Reviewing and Adjusting Your Plan
Regular Portfolio Review
Regularly review your investment portfolio. Assess the performance of each investment at least annually. Rebalance your portfolio based on changing market conditions and your financial goals.

Seek Professional Advice
A Certified Financial Planner can provide valuable insights and guidance. They can help you with periodic reviews and adjustments to ensure you stay on track to achieve your financial goals.

Tax Efficiency
Tax Planning
Effective tax planning helps maximize your returns. Utilize tax-saving instruments like Equity Linked Savings Scheme (ELSS), PPF, and NSC. Consult your financial planner to optimize your tax liability.

Risk Management and Diversification
Diversification
Diversification minimizes risk by spreading investments across different asset classes. Ensure your portfolio remains well-diversified to cushion against market volatility.

Risk Tolerance
Align your investments with your risk tolerance. Prioritize safety and stability over aggressive growth if you’re risk-averse.

Final Insights
You have a solid income and are already on a good path with investments. Prioritize home loan repayment by using surplus income, increasing EMIs, and making lump sum payments. Continue and increase your SIPs in diversified mutual funds for wealth accumulation. Build an emergency fund and ensure adequate insurance coverage. Regularly review and adjust your portfolio with professional guidance to stay on track.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in