InvestorQ : I have some accumulated cash, and have sufficient income under which I manage to pay my housing loan EMIs, what should I do from the available funds, invest or repay the loan?
krithika Saxena made post

I have some accumulated cash, and have sufficient income under which I manage to pay my housing loan EMIs, what should I do from the available funds, invest or repay the loan?

Answer
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Anisha Awate answered.
7 months ago


Well, this is a common dilemma. In fact, most of the salaried individuals face this situation at some point in their life. If you’ll ask a financial advisor the common advice that they give under almost all the circumstances is to re-pay the loan first and then start saving for yourself. 

However, this advice is applicable to a lot of things such as if you have an expensive credit card loan, car loan, personal loan or any other loan but if you have a home loan on which the interest you pay is substantially lesser than the returns you will receive on your investment.

Also, under housing-loan, one also gets tax benefit on the interest repayment, which would not be available otherwise. So, if you re-pay your loan before its actual maturity, it might take away double-benefits from you.

There are still two sides to this – one is that if you have enough financial savings that are liquid and accessible and is in a situation where no great expense is anticipated, in that case, it would be more justifiable to retire the loan first and then think of savings.

Another side is that if you have very little savings and you have some major expenses that might be standing on your door then repaying your loan before time shall not be the right choice. Since having instant access to an emergency fund is worth any kind of disadvantage that an interest rate differential might bring.