is it advisable to prepay your home loan?

Question

in the era of steady increasing home rates. it is advisable to prepay part of the home loan.

some more details.
I live in India. here you get Tax benefits both on the principal and interest. on top of that, my company takes care of any interest liablity more than 4 %. presently the interest % is 9 % and is expected to climb futher in the next 1 year to atleast 10 %.
plz base your answers based on the new info.
thanks

Answer 1

Well, it depends. If you have other higher interest debt, then it is advisable to pay those off first. Assuming you live in the US, the interest for those debts may not be tax deductible.

If you have no other debt, then it is always a good idea to pay down your mortgage. It helps to shorten the life of the loan and may save you thousands in interest. Be careful of pre-payment penalties. Your note will tell you if have any. In most cases, a small increase in your monthly payment of $25-$50 will not incur pre-payment penalties.

For a good calculator: Check out www.bankrate.com. You'll be able to plug in your scenarios and get amortization schedules.

I hope this answers your questions. Please e-mail me at [e-mail] if it hasn't.

Anne

Well Harry...the advice remains the same. ESPECIALLY if your company is subsidizing the interest over 4%. Pay off your higher interest debt first, then pre-pay your mortgage. No matter what, you're still paying someone a fee to borrow their money. The sooner you pay it off, the less you'll be paying out of your pocket...

Answer 2

Well since the interest rate is going to climb then I would assume yes you would pay it down.

You also want to look at other factors. Do you have other high interest loans? If so then it is better to repay whatever loans have the higher interest rates because in all reality those are the loans you are paying more money for.

Lets say you are still at 9% and you have some other debt that is at 12%. I would try and pay that debt down until that 9% climbs (if it going to still climb) to 12% or more or whenever the highest interest loan is paid in full.

Answer 3

In my opinion it is not wise to prepay part of the loan when your company is liable to pay interest more than 4%. For another decade the interest rates may move northwards but not any cost it would reach 12%. If your prinicipal amount is more and savings is reasonably made, then it is advisable to prepay part of the loan amount to get the burden of interest lessened.

Answer 4

I do not think it is advisable to prepay the loan.Costs of essential commodities rise in India at a very high rate. The benefit if any you see on paper by calculating the payments and savings do not consider this fact. Enjoy your loan as long as it gets you tax rebates.

Answer 5

By prepay, I assume you mean to pay down the loan early by paying additional money against the principal on the loan, and the answer is always a resounding "yes". You get your house paid for faster and you avoid a ton of interest charges.

Answer 6

If your goal is to increase your net worth you should use as much of your income as possible to increase your assets and/or decrease your liabilities, and as little as possible on expenses.

In deciding how to use your next dollar of discretionary income to increase assets or decrease liabilities the question is what is the rate of return. If you have credit card debt with a rate of 19%, investments that are likely to earn 8% and a mortgage at 6% then you should first pay off the credit card debt, then add to your investment.

But if you have no debt other than a 7% mortgage and your investments are likely to earn 5% then you should prepay your mortgage unless your mortgage is deductible and your marginal tax rate is 28.6% or more ( making your effective mortgage rate less than 5%).

Answer 7

well, hopefully you have a fixed mortgage, but it is a good thing to do (pay off early) First, you need to find out if there are pre-payment penalities. Sometimes they're only for a couple of years, some longer. if you plan to apply extra to your loan, then send 2 checks. One for the amount you pay a month and the other to apply towards the principle and state that on the check and in a note. If you don't, they can use some of it for interest, too.

Answer 8

I am a retired bank officer.
In case I was in your place, for the time being, I will not prepay the housing loan for the reasons asunder:

Though a few more aspects were important such as loan amount - your appx. annual income (particularly in under which income tax slab you are ) - base details of tax planning investment (such as LIC premiumetc.) I provisionally conclude as under :

Prepayment canbe done anytime. You say the rate of interest may go up. Or let us say the circumstances around you change and servicing of loan seems costlier, you may think prepayment at that time.
(i) Presently, you need not repay the loan, Loan instalment upto Rs.1.00 lac will be deducted from your income under section 80C and you will save tax according to your incometax slab. There are some fixed commitment under section 80(C) such as (i) Provident fund deducted by employer (ii)yearly LIC premia (iii) minimum contribution to keep PPF a/c alive etc. You add up these - subtract the same from Rs.1 lac and increase your yearly principal repayment to at least that level. Repayment of housing loan is better option under section 80C than deposit options.

(ii) The interest chargeable to your loan account for that year is again deductible under section24 and you save tax according to your slab.

(iii) Keeping in view situation of housing in India, our government had been allowing more and more concessions in housing. Tax concessions in housing loan is oneof important tools. In coming years more liberal terms could be there. If you prepay, you will miss that oppurutnity.

Interest load > 4% is taken over by your company. I think if you calculate everything - under present circumstances - you willbe benefitted by continuing loan. In future, - after 1 - 2 - 3 years you may review the position,if necessary, you may repay THEN.

The above reply is in Indian context.

BEST OF LUCK.

Answer 9

you must be very careful to choose this option. there are cases when prepay is not credited into your account if it is more than the instalment amount, ther remaining portion does not attract even deposit interest. so prepay in full and closure is advisable and certainly not excess to your instalment amount, without making sure that the entire amount shall be credited to your loan account.

Answer 10

I tis always advisable to pay off a loan early, unless there are penalties that would cost more than the interest would cost you if you keep the loan for the amount of years.