In what conditions does it make sense to prepay a home loan?
For prepayments go for proper cost-benefit analysis due to various tax benefits purposes.
Nowadays, financial institutions allow an individual to prepay a housing loan any time during the loan tenure without any charge, in case of floating rate of interest says Sanjaya Gupta, MD, PNB Housing Finance. Usually, financial institutions provide an option of either a reduction of the loan tenure, keeping your monthly installment unaffected, or reduction of monthly installments by keeping the term unchanged.
For making prepayments, a proper cost-benefit analysis needs to be done as, due to various tax benefits applicable under Section 80C and 24B on the availed home loan facility, the effective ROI turns out much lower if it is an already built self-occupied property. Thus, it makes sense to continue paying regular EMIs and invest surplus money elsewhere.
In case of multiple home loans, offset the interest paid on housing loan from your rental income without any limit. Hence, the effective tax rate on marginal income is significantly lowered. It is advisable to keep home loans for tenure of approximately 8-9 years.