4 reasons why you should not pre-pay your home loan

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More often than not, an investment advisor would advice you to close your home loan early. In the Indian context the situation is slightly different, because home loans come with various benefits. Here are 4 reasons why you should not close your home loan early.

Make the most of 80C Tax benefits

As long as you keep paying your principal amount you can avail tax benefits under SEC 80C. What this means is that if you are paying Rs 12,000 as principal every month it amounts to Rs 1.44 lakh annually. A sum of Rs 1.5 lakh tax benefit can be availed under SEC 80C of the Income Tax Act every year. Why would you want to lose this tax benefit every year, by paying of your home loan early.

Avail tax benefit under sec 24 of the IT Act

The interest paid on housing loan is exempt under Sec 24 of the Income Tax Act. What this means is that if a sum of Rs 2 lakhs is paid as interest to the bank or the housing finance company, the entire amount can be deducted from your total income for the purpose of tax. So, do not pre-pay your home loan early.

Can avail home loans at low interest rates

If you pre-pay your home loan and suddenly realise that you have to take a personal loan, remember that would have made an unwise decision. Interest rates on home loans are the cheapest as compared to any loans in the country.

Tax benefits in the Union Budget

The interest on tax exemption on home loans has been enhanced in the Union Budget to Rs 2 lakhs from Rs 1.5 lakhs. This is a major boost to existing individuals paying high interest on home loans.

Read more about: home loans, tax benefit
Story first published: Friday, July 18, 2014, 11:15 [IST]
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