Finance

4 Reasons Why You Must Settle Your Home Loan Last

It is easier than ever to buy your dream home today. Banks provide the best home loan offers at lucrative interest rates, and it is a hassle-free transaction, given that you have all your documents in order. Suppose you have bought the house of your dreams, and while the comfort of the new abode is indeed inviting, you are still stressed. The reason is that you are juggling multiple loans, and managing various EMIs within a month is becoming financially stressful. In such a case, perhaps you are considering settling your home loan. We will tell you why it is not a good idea and why you should settle your home loan last.

1) Lowest Interest Rate in Comparison to Other Loans

Before talking about the advantages of the home loan’s low-interest rates given by a home loan finance company, let us understand other liabilities that cost much more. In today’s fast-paced age, where one’s lifestyle standards are high, and one needs to present a certain profile, be it for professional or personal reasons, the expenses surrounding an individual tend to mount. In this event, the person may end up taking refuge in a variety of transactions and loans. First in line with these lifestyle boosters comes the ubiquitous credit card. Repaying credit card debts can be significantly stressful because of the high-interest rates. Next in line is a personal loan which is often obtained quite seamlessly these days. Individuals opt for personal loans for wedding expenses, medical emergencies, travel, house redesigning, etc. The rates of interest for credit cards and personal loans can go as high as 20%! Next, if one is considering the rate of interest of a car loan, it is usually fixed at around 8%. Let us recount these statistics in a nutshell.

  1. Credit card – Rate of interest around 20%
  2. Personal loan – Rate of interest around 20%
  3. Car loan – Rate of interest around 8%

The home purchase loan has the lowest rate of interest, around 7% in most cases, and therefore it is prudent to pay off the home loan last.

2) Avail Tax Benefits on Home Loans

Unlike any other loans mentioned above, the home loan allows you to get a tax benefit on the interest plus the principal repayment. The feature of tax benefits can actually aid the homeowner because the property typically appreciates over time. Up to INR 1.5 lakh of the EMI can be converted as tax savings. However, this applies only if the home is not sold off within five years of purchase. In another stipulation, if the home loan was obtained to construct the house and the same was completed within five years, there is a provision for a maximum deduction of INR 2 lakh. Furthermore, interest on EMI can also be deducted more by INR 50,000 if the instant home loan amount is INR 35 lakh or less and the value of the property is lesser than Rs 50 lakhs. Finally, there is the possibility of a deduction of Rs 1.5 lakh on the interest in case the property’s stamp value is less than or equal to Rs 45 lakh or less. Let us summarise these statistics:

  1. Up to INR 1.5 lakh of the EMI can be converted as tax savings if the home is not sold off within five years of purchase.
  2. If the home loan was obtained to construct the house and the same was completed within five years, there is a provision for a maximum deduction of INR 2 lakh.
  3. Interest on EMI can also be deducted more by INR 50,000 if the loan amount is INR 35 lakh or less and the value of the property is lesser than Rs 50 lakhs.
  4. There is the possibility of a deduction of Rs 1.5 lakh on the interest in case the property’s stamp value is less than or equal to Rs 45 lakh or less.

For these reasons, it makes absolute sense to pay off a less-interest home loan the last.

3) Coping with Mounting Expenses

Everything is becoming expensive these days, and it is becoming increasingly difficult to maintain one’s lifestyle. From your children’s school fees to the rising cost of fuel and basic necessities – everything is becoming more expensive. In such a scenario, many individuals consider repaying their debts to become stress-free. In the face of such increasing expenses, it is indeed solace to own the house that you got through a hassle-free process from a good home loan provider. However, many financial worries may be nagging you, and you might be considering closing off the home loan. This idea is not in your best interest as the best home loan has the lowest interest rate, and you should focus on clearing debt related to credit cards, personal loans, or car loans first.

4) Funds for emergency situations

For a variety of reasons, you feel financially burdened and are considering using your resources to pay off the home loan. All these points must be ideally forethought when you apply for a housing loan. Other than the reasons outlined above, we would suggest that you keep off paying the home loan to the last because foreclosure involves a huge chunk of money. If you spend a large amount in paying off the loan, there are high chances that you may face difficulty in case an emergency arises, and you do not have sufficient funds or insurance cover to tackle the same. It is a scenario that, indeed, must be avoided.

Wrapping Up:

In conclusion, we strongly recommend settling your home loan last. You did your research well and got the house of your dreams by scouting the best home loan offers. Now, indulge in further research and understand why it is a sane financial decision to pay off the home loan after you have cleared other debts. Credit cards, personal loans, and car loans have significantly higher interest rates than home loans, and therefore the attempt should be to repay these loans first. Moreover, foreclosure of a home loan requires a huge chunk of money. Remember that the same money that you intend to use for foreclosure of the home loan can be used as a corpus for emergencies.

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