hIt is a well-known fact that the Indian consumers are very touchy when it comes to taking a loan, especially if it is a long-term debt. Despite the fact that in the last few years the tax advantages that are associated with the housing loans have increased tremendously, most of the Indian borrowers are in a rush to pay up their loan amounts much before maturity period and are eager to write off their debts. It is common knowledge that home loans are usually long term in nature.
Therefore, when it comes to the issue of home loans repayment at a date earlier than the maturity, the question raised is whether it makes sense for the Indian borrower to do that. The answer to that question is that it is not a good idea in the present environment, when the interest rates on housing loan are at an all-time low, and there are significant tax benefits available to the home loan seekers.
On the contrary, in fact, it might just make better sense for the borrowers to carry debt in general and a home loan in particular is a good idea for the number of advantages it provides over other forms of debt. If the borrower analyzes the repayment schedule carefully and the loan amount is chosen carefully, then he/she will be able to save a good sum through the tax rebates.
Some of the other benefits of the home loans extending over a period of time will be the benefit of the inflation over the term of the loan, as money gets cheaper by the year. The tax benefit coupled together with the effect of inflation brings down the effective interest rate that is paid to a considerable extent.
This doesn’t mean that it is a general rule to never pre-pay the debt. However, there is a time when it is appropriate to do that and one should think of prepaying the loan if possible, but this pre-payment should be planned wisely.
Therefore it is a good idea to not rush in to paying off the home loans or for that matter any other long-term debt. And in case you do decide to pre-pay, it would be a good idea to take time and plan it carefully.