Buying an expensive phone for family vs prepayment of home loan?
There are times when objects of desire captivate you and you tend to forget expenditures and financial responsibilities.
Are you also among those gadget freaks who frequently face the dilemma of choosing between that sleek, expensive phone and prepayment of home loan?
Though it is great to keep pace with the changing technology or flaunt that new gadget in the market, there are a few factors which you should consider before giving in to the temptation.
Know your priorities
It is a common belief that you become the true owner of your house only when you have paid off your debt. Home loans have a long tenure of 15-20 years and paying a major chunk of your salary towards EMI every month is a painful experience. By the time you are done with the loan, you end up paying more than the principal amount as interest.
So, what is the way out? You can reduce your debt burden and prepay your loan in parts whenever you have a decent amount at your disposal.
Therefore, whenever you get your Diwali bonus or performance bonus, do not fritter it away on expensive gadgets whose value starts diminishing the moment you purchase it.
Why prepayment?
Earlier, prepayment was a difficult task as there were costs involved. But after the RBI directives, banks no longer charge prepayment fee on floating rate loans.
Most of the banks allow borrowers to make prepayments as many times they want. Whenever you get an increment, arrear, festival or performance bonus, consider the option of prepayment. Sacrificing your desire to own an expensive mobile phone will certainly be a smarter choice than that smartphone.
Use your surplus for prepayment
Arpit Kumar had taken a home loan of Rs 40 lakh five years ago. At that time his salary was Rs 90,000. Five years on, he earns Rs 1,25,000 as he had been getting decent hikes consistently. As he continued to limit his expenditures, he invested some money and accumulated surplus amount. This amount can come in handy if he opts for prepayment.
However, before making prepayments, one must make sure that one has kept aside sufficient amount to meet any emergency situation.
Cut on expenses
Once you start paying your home loan, the initial years are for cutting on extra expenses. You can do away with vacation plans, organizing big parties and buying expensive items. Divert this money towards sound investments and loan prepayments.
This strategy will help you in foreclosing the loan before the tenure ends thereby saving a lot on interest outgo.
Loan prepayment: A family affair
Home loan burden is a big one and it should be shared by all members of the family, if not financially, then emotionally. Discuss your assets and liabilities with your family so that they have a clear idea that the entire family will have to spend within its means.
If you want to spend quality time with your family, you need not go to a foreign destination for it. A calm and serene destination in the country can also do the trick.
What if I invest and not prepay?
Investing your money instead of prepaying your loan is also a good idea but you should make sure that the returns on your investment should be way above the interest rate that you are paying on home loan.
There are many borrowers who want to put off their debt burden as early as possible. If you are one of them, you should go ahead with prepayment.
