Home Loan: Should you prepay or invest surplus money?

A home loan is a burden you’d like to take off your chest as soon as possible. Especially when you have enough money at hand or the equity market is performing reasonably well and interest rates are also lower than usual. However, a financial dilemma arises just then: Should you rather ‘invest’ the excess money or use it to pay off an outstanding loan? If this question arises, what will be better in terms of financial planning? Nisha Sanghvi, Co-Founder of Promore Fintech at Money 9 Helpline will answer all your questions.

Edited excerpts

Kalpesh Dave: My home loan is Rs 29 lakh and I pay Rs 22,000 monthly EMI for term of 25 years. My salary is Rs 40,000. Please guide me.

Sanghavi: In your case, more than 50% of your income is going into EMI. If you have no backup created like contingency fund, term plan, or health insurance. If in such a case you suffer from health ailments or job loss it will become very heavy to bear the cost of the EMI. I would suggest if you have some money then pay the principal amount of your loan, this will help to reduce the loan amount. Keep tenure the same and reduce EMI. With the EMI that you will save, you can invest in wealth-creating assets.