Sir, If someone earns a yearly salary of 10 lakh and has an outstanding housing loan of 24 lakh with 6 years left and EMIs of 40,000, would it be wise to use a 24 lakh amount to pay off the housing loan? Alternatively, should they consider paying off a 15 lakh jewel loan? What would be the better choice? The interest rate of housing loan is 9.55 and 3.5 L can show for income tax relaxation as per old regime. Housing loan interest is increasing gradually year by year.Interest for jewel loan is 7%. Can you please suggest now?
Ans: Paying off debt is an important financial decision, and several factors should be considered before making a choice. Here's a breakdown of the options:
1. Paying off the Housing Loan:
• Pros: Paying off the housing loan can provide peace of mind and reduce financial burden in the long term. It can also save significant interest payments over the remaining tenure.
• Cons: Using a large portion of savings to pay off the housing loan may leave you with limited liquidity for emergencies or other financial goals. Additionally, if the interest rate on the housing loan is tax-deductible, you may lose out on tax benefits.
2. Paying off the Jewel Loan:
• Pros: Paying off the jewel loan can eliminate high-interest debt, which may provide immediate relief in terms of cash flow. It can also prevent further interest accrual on the jewel loan.
• Cons: Jewel loans typically have lower interest rates compared to housing loans. As a result, prioritizing the jewel loan over the housing loan may not optimize interest savings in the long term.
Considering your situation, here are some additional factors to consider:
• Tax Implications: If the interest on the housing loan is tax-deductible, it may be beneficial to retain the loan and continue claiming tax benefits. However, if you are availing the old tax regime and already maximizing deductions, this consideration may be less relevant.
• Future Financial Goals: Evaluate your long-term financial goals and liquidity needs. If paying off the housing loan leaves you with insufficient emergency funds or impacts other important goals, it may not be the best choice.
• Interest Rate Differential: Compare the interest rates of both loans. If the interest rate on the housing loan is significantly higher than that of the jewel loan, prioritizing the housing loan may be more financially prudent.
Ultimately, the decision should align with your overall financial plan and priorities. It may be beneficial to consult with a Certified Financial Planner (CFP) to analyze your specific circumstances and make an informed decision.
Best Regards, K. Ramalingam, MBA, CFP, Chief Financial Planner www.HolisticInvestment.in
