1

Which one will be better to clear off the home loan ASAP :

  1. Paying monthly extra pre-payment
  2. Putting pre-payment amount in an Home-loan-saver-account
  3. Putting pre-payment amount in SIP/Mutual Fund for 3/6/12 month

Please do ask if more info needed regarding this question.

EDIT: Answer to asked questions:

a) What's the interest rate on the home loan? 
   => 8.5%
b) What country are you in?
   => Mumbai, India
c) what is the SIP/mutual fund rate?  
   => Though it's fluctuate but experts says it could be in between 12-20%
d) What is the balance on the home loan? What is the term on the home loan?
  => Balance is almost 34L.
     Duration is of 300 month, out of which I had paid for 9 month so far.
e) Does  "Home-loan-saver-account" has a guaranteed higher interest rate that the loan ?
  => I think, I must inform you what is Home-loan-saver-account in India.

Please see this link

  • 3
    What's the interest rate on the home loan? – RonJohn May 14 '18 at 12:47
  • 2
    What country are you in? – RonJohn May 14 '18 at 12:47
  • 1
    what is the SIP/mutual fund rate? – depperm May 14 '18 at 12:47
  • What is the balance on the home loan? What is the term on the home loan? – Freiheit May 14 '18 at 16:43
2

(I'm assuming you have no prepayment penalties since you list paying the loan early as the first option)

Unless the "Home-loan-saver-account" has a guaranteed higher interest rate that the loan, then putting money in there will not help you pay off the loan faster.

Putting it in a mutual fund or other risky investment might net you more interest, but there's about a 50% chance that it will actually lose money over 3-6 months. Even if you did make a little more interest, it probably wouldn't change your payoff by more than a month (you'd have to make a month's worth of principal to pay off the loan that much sooner).

Paying back a loan gives you a risk free return. You pay less interest (roughly equal to the interest rate times the amount you prepay) in the following months by paying the loan down.

Another, more effective, way to pay down even faster is to increase income or decrease expenses. Take on extra work, drop some luxuries for a few months, or sell some items that you don't need anymore. That will be much more effective that playing around with interest rates.

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