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Loan query: Paid back Rs 12.50 lacs home loan, still owing Rs 6.66 lacs, what to do?

Milind

Milind Vadjikar  |1199 Answers  |Ask -

Insurance, Stocks, MF, PF Expert - Answered on Mar 24, 2025

Milind Vadjikar is an independent MF distributor registered with Association of Mutual Funds in India (AMFI) and a retirement financial planning advisor registered with Pension Fund Regulatory and Development Authority (PFRDA).
He has a mechanical engineering degree from Government Engineering College, Sambhajinagar, and an MBA in international business from the Symbiosis Institute of Business Management, Pune.
With over 16 years of experience in stock investments, and over six year experience in investment guidance and support, he believes that balanced asset allocation and goal-focused disciplined investing is the key to achieving investor goals.... more
SANJIB Question by SANJIB on Mar 07, 2025Hindi
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Dear Sir, I am working in a Pvt company. I have taken Rs 13 lacs as housing loan in the year 2012 from LICHFL. They disburse me 12.5 lacs & hold 50 thousand on a/c of registration. I have repaid through monthly EMI since 1st June 2012 to 2025 March 2025 while checking their portal it is showing Rs 6,66,325 as my balance amount and last instalment is on 7th Jan 2031. Please note Rs 13137 is deducting as monthly EMI. Now I have 10 years of my service with me and not able to understand change of RAPO rate and its effect etc etc. What is your preferable advice. Should I repay balance amount or keep on repaying the amount through monthly EMI as already substantial amount has been repaid. Sometime, I apprehend that excess has been deducted on a/c of repayment but not aware of basic EMI deduction calculation which can established my doubt. Regards Sanjib

Ans: Hello;

You have a right to seek explanation from your lender regarding principal repayment and interest payment through EMIs across the loan tenure.

Irrespective of the repo rate movement, it is financially prudent to repay the outstanding home loan in totality as you are relatively closer to retirement (10 yrs).

This will give you freedom to save more towards retirement and other goals.

Best wishes;
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |8314 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on May 07, 2024

Asked by Anonymous - Apr 30, 2024Hindi
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Hello Sir, I m 44 year old women having 29 lakhs in equity & ELSS, 6 lakhs in PPF and 25 lakhs in FDs...I have retired now as was tired of doing sales job ..my question is I have 12 lakhs home loan to repay...my monthly expenses is 25k ...shall I pay that loan amount entirely now or the emi of 23 k till 2029 is feasible in my case?..
Ans: Considering your financial situation and retirement status, let's evaluate both options:

Paying off the Home Loan Entirely:
Advantages:
Eliminates the burden of debt and interest payments, providing peace of mind and financial freedom.
Saves on interest payments over the loan tenure, potentially resulting in significant savings in the long run.
Considerations:
Paying off a substantial portion of your savings (12 lakhs) may reduce your liquidity and emergency fund.
Evaluate whether you'll have enough savings left for emergencies and to maintain your desired lifestyle.
Continuing with EMI Payments:
Advantages:
Preserves your savings and liquidity, allowing you to maintain a financial cushion for emergencies and unexpected expenses.
The EMI of 23k per month may be manageable given your monthly expenses of 25k, allowing you to maintain your lifestyle.
Considerations:
You'll continue to have the burden of debt and interest payments for the duration of the loan tenure.
Evaluate whether you're comfortable with the ongoing financial commitment and potential interest payments over the long term.
Factors to Consider:

Emergency Fund: Ensure you have an adequate emergency fund to cover at least 6-12 months of living expenses.
Investment Opportunities: Consider whether you can potentially earn higher returns by investing the lump sum amount elsewhere.
Peace of Mind: Assess the psychological benefit of being debt-free versus having ongoing loan payments.
Ultimately, the decision depends on your individual preferences, risk tolerance, and financial goals. If being debt-free brings you peace of mind and you have sufficient savings for emergencies and retirement, paying off the loan entirely may be a prudent choice. However, if you prefer to maintain liquidity and have confidence in managing the EMI payments comfortably, continuing with the EMI payments could also be a viable option. Consider consulting with a financial advisor to assess the best course of action based on your specific circumstances.

..Read more

Ramalingam

Ramalingam Kalirajan  |8314 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 07, 2025

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Dear Sir, I'm single 28 years Male. Recently took loan of 40 lacs. Currently 31 lacs has been disbursement. EMI will be started in next months. My EMI is 35,100 and interest rate is 8.65% from PSU bank. Per month salarly is 1 lac. I'm confused that should focus on re-payment of loan as quickly as possible or remaining amount after expense + loan emi should be invested in mutual fund. Could you please help to understand more on it.
Ans: You are 28 years old and earning Rs. 1 lakh per month.

You have taken a loan of Rs. 40 lakh, with Rs. 31 lakh already disbursed.

Your EMI is Rs. 35,100 per month at an 8.65% interest rate.

You need clarity on whether to prepay the loan or invest in mutual funds.

Your financial decisions today will impact your long-term wealth and stability.

Key Factors to Consider
1. Interest Rate vs. Investment Returns
Your home loan interest rate is 8.65% per annum.

A well-diversified mutual fund portfolio can deliver higher long-term returns.

If investment returns exceed 8.65%, investing will build wealth faster than prepayment.

If returns are lower than 8.65%, prepayment will save more money in the long run.

The choice depends on your risk appetite and financial goals.

2. Liquidity and Emergency Fund
Loan prepayment reduces future liabilities but also locks up funds in the property.

Investing ensures liquidity, allowing easy access to funds if needed.

Before deciding, ensure you have an emergency fund of at least six months' expenses.

Emergency funds should be in liquid instruments, not tied to long-term investments.

3. Tax Benefits on Home Loan
Home loan interest payments offer tax deductions under Section 24(b) up to Rs. 2 lakh per year.

Principal repayment qualifies for deductions under Section 80C up to Rs. 1.5 lakh per year.

Prepaying the loan reduces tax benefits, while investments provide wealth creation.

Consider the tax impact before choosing prepayment over investment.

4. Future Financial Goals
List your short-term and long-term financial goals.

If planning major expenses in the next 3-5 years, maintaining liquidity is better.

If long-term wealth creation is the focus, investments can be prioritized over prepayment.

A balanced approach can ensure financial flexibility while reducing loan burden.

Pros and Cons of Loan Prepayment
Advantages of Loan Prepayment
Reduces total interest paid over the loan tenure.

Improves cash flow in the future by reducing EMI burden.

Provides peace of mind by becoming debt-free earlier.

Disadvantages of Loan Prepayment
Reduces liquidity, making it harder to manage unexpected expenses.

Leads to lower tax savings on interest payments.

Misses the opportunity to generate higher returns through investments.

Pros and Cons of Investing in Mutual Funds
Advantages of Investing
Has the potential to generate higher returns than loan interest rates.

Keeps your funds liquid and accessible for future needs.

Offers flexibility to diversify across asset classes.

Provides tax-efficient wealth creation in the long run.

Disadvantages of Investing
Market fluctuations can impact short-term returns.

Requires disciplined investing and a long-term perspective.

Returns are not guaranteed, unlike the fixed benefit of interest savings from prepayment.

Balanced Approach: Best of Both Worlds
Instead of fully prepaying or only investing, a balanced approach works best.

Allocate funds for prepayment and investments based on your financial priorities.

Consider prepaying small amounts yearly to reduce loan tenure without losing liquidity.

Continue investing systematically to build wealth alongside reducing debt.

Steps to Follow for an Optimal Decision
1. Build an Emergency Fund First
Save at least six months’ worth of expenses before considering prepayment or investment.

Keep this fund in a liquid asset like a savings account or liquid mutual fund.

2. Check Loan Prepayment Terms
Some banks charge penalties on prepayment, especially for fixed-rate loans.

Ensure there are no additional costs before making a decision.

If prepayment charges exist, investing may be a better option.

3. Invest in Mutual Funds for Long-Term Growth
Investing a portion of your surplus ensures wealth accumulation over time.

Choose diversified funds for a balance of growth and stability.

Invest systematically through SIPs to average out market volatility.

Regular funds through a Certified Financial Planner ensure professional fund management.

4. Make Partial Prepayments Annually
Instead of bulk prepayment, consider making small additional payments each year.

Even Rs. 1 lakh per year can significantly reduce loan tenure and interest burden.

This allows you to maintain liquidity while still reducing debt faster.

5. Reassess Your Strategy Periodically
Financial priorities change over time, so review your approach annually.

If interest rates increase, prioritize prepayment.

If market conditions favor investments, increase mutual fund contributions.

Stay flexible to maximize financial benefits.

Finally
Loan prepayment and investing both have their advantages.

A balanced approach ensures financial security and wealth creation.

Maintain an emergency fund before committing to either option.

Invest systematically to build long-term wealth.

Make small prepayments yearly to reduce the loan burden.

Review your strategy regularly to stay aligned with financial goals.

The right choice depends on your comfort with risk, tax benefits, and long-term objectives.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

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

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Ramalingam

Ramalingam Kalirajan  |8314 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Feb 18, 2025

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Dear Sir, I took a loan of Rs. 44 lakhs @ 8.70% floating with 216 EMIs in August 2019 from HDFC Housing. Till recent, i'm not aware that the rate of interest being applied is 10.5% and still it is shown as 213 EMIs balance to be remitted as on 18.02.2025, despite no pending or late payments at my end. Please advise what to be done sir!
Ans: Your situation is a classic case of interest rate hikes affecting floating-rate home loans. Since you took the loan in August 2019 at 8.70%, and now the rate has increased to 10.5%, your EMI is going more towards interest rather than the principal. That's why your loan tenure has barely reduced.

Immediate Steps to Take
1. Contact HDFC Housing Immediately
Visit or call your bank and ask for a detailed loan amortization statement.
Get clarity on why the tenure is not reducing despite timely payments.
Request a break-up of the outstanding loan amount and revised interest calculations.
2. Ask for an Interest Rate Reduction
HDFC allows you to reduce your floating rate by paying a nominal fee (loan conversion charge).
Check the current floating home loan rates for existing borrowers and ask them to apply the lowest possible rate.
If HDFC refuses, ask about switching to a better scheme within HDFC itself.
3. Consider Balance Transfer to Another Bank
If HDFC does not reduce your interest rate significantly, you can transfer your home loan to another bank with lower rates.

Banks like SBI, ICICI, and Axis Bank may offer interest rates below 9% for a balance transfer.
Check with a few banks and negotiate for the lowest possible interest rate.
Ensure that the processing fee and other charges do not offset the savings from lower interest.
4. Prepay a Part of Your Loan (If Possible)
If you have some savings, prepay at least 5-10% of the loan principal.
This will reduce your interest burden and EMI tenure.
Ensure that prepayment charges (if any) are minimal or waived.
5. Monitor Your Loan Regularly
Floating-rate loans fluctuate based on RBI policy changes.
Check your home loan rate every 6 months to avoid sudden increases.
Opt for automatic rate conversion with HDFC, if available.
Final Insights
You should first try to reduce your rate with HDFC.
If they do not offer a better rate, go for a balance transfer.
If you have surplus funds, consider prepayment to reduce your tenure faster.
Always monitor your home loan rate every 6 months to avoid overpaying.
Would you like help in evaluating a balance transfer option with a different bank?

Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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