Foreclosure of a home loan is always a good option as it makes you financially debt-free, but there is always an optimal/intelligent methodology to go about the foreclosure of the loan that will be the least, to reduce your monetary impacts and save your money.
Never foreclose the home loan, only part-pay the loan.
Leave last few EMIs and pay them as regular EMIs. As last EMIs will have a lower component of interest and the same is applied at a diminishing rate, it means we are only paying principal component in the last EMIs. Thus, there is no benefit in paying the lump sum amount and foreclose the loan. The same can be invested in other high return investment options.
Assumption Home Loan Amount: 25 lakhs
Assumption Tenor: 20 years
Assumption ROI: 8.8%
|Leaving Last 12 EMIs||Leaving Last 24 EMIs||Leaving Last 36 EMIs|
|Invest Principal outflow in FD|
|Returns on FD – 6.5% (Post-tax)||16,487/-||65,254/-||1,45,386/-|
As per the above illustration, for Rs 25 lakhs home loan for 20 years @ 8.8% rate of interest, there would be an overall saving of Rs. 46,000 if invested in an FD rather than put toward foreclosure/part payment of loan during the last 3 years of the loan tenor.
You can make use of the Bajaj Finserv home loan calculator at Finserv MARKETS to help you with these calculations and arrive at a decision on whether you want to foreclose the loan.
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