×
Home Companies Industry Politics Money Opinion LoungeMultimedia Science Education Sports TechnologyConsumerSpecialsMint on Sunday
×

Ask Mint Money | Consider real cost of home loan, liquidity need before you prepay

Ask Mint Money | Consider real cost of home loan, liquidity need before you prepay
Comment E-mail Print Share
First Published: Thu, Sep 01 2011. 09 28 PM IST
Updated: Thu, Sep 01 2011. 09 28 PM IST
I want to go to the US for further studies in 2016. I have Rs 3 lakh which I can invest. How should I invest this money so that I get decent returns and am able to fund my further studies?
—Sejal
You have close to five years before you really need this money and this money can be invested for a reasonably long time. At the same time, this is needed for your education. So you also want the funds to be reasonably secured.
It appears you are already working and you want to pursue higher education after having some work experience. The reason why this is brought up is to arrive at your taxable income. You may not be currently taxed at the highest rate of tax. If that is the case, you can consider to lock in part of your funds—Rs 1 lakh in a long-term bond, fixed deposit (FD) or even better in a fixed maturity plan. You can go for a long duration (of course less than five years) in the said schemes.
The balance of Rs 2 lakh can be invested in balanced funds. Good options in this category are HDFC Prudence and HDFC Balanced. You can do this investment through a systematic transfer plan over the next six months. You can consider switching the returns, in partial tranches, from the second half of 2015 in perhaps liquid/short-term funds.
I took a teaser housing loan last year. At present, the interest rate is fixed at 9.50% per annum. This will be reset next April at prime lending rate minus 5%. I have some surplus funds currently. Should I prepay a part of my housing loan or invest the same considering high rates on FD and other instruments. The home loan provider allows me to prepay up to 25% of my loan (maximum twice in a year) without any penal interest.
—Nimesh
Your new rate will come into effect from next April and that is still at least six months away. Why do you want to pay the loan now when you are still enjoying the teaser rate? At the same time the interest that your surplus funds will be able to generate will also be not so attractive as compared with the 9.25% teaser rate.
However, you need to consider two things before you decide—the real cost of loan after considering income-tax benefits and the need of money. In the current interest regime, home loan is the cheapest loan available. And if you require funds for any reason such as buying a car or any other financial asset or to even provide liquidity, stick to your loan.
At a later stage, when your lending rate will be linked to the market rate, you weigh the above said options and decide. As of now, it does not appear the rates will come down in the short term. However, they may not be far from their peaking out phase.
Surya Bhatia is Certified financial planner and principal consultant, Asset Managers
Queries and views at mintmoney@livemint.com
Comment E-mail Print Share
First Published: Thu, Sep 01 2011. 09 28 PM IST