Five factors to consider before prepaying home loan

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When a lender sanctions you a home loan, your eligibility is decided based on your current income. In majority of the cases, the home loan is taken during the initial stage of one’s career where the income increases over the years and the borrower can accumulate enough funds during the tenure of the home loan. In such a situation he faces the dilemma of whether to prepay the home loan by utilising the surplus funds or to invest the funds somewhere and let the home loan run its course. Moreover, as the interest rates have also gone up significantly of late, borrowers are considering this decision seriously.

It is not an easy question to answer as the answer would depend on various factors. Let us attempt to understand some of the important factors that you should consider before you make the decision either way.

Tax impact significantly impacts all the investment decisions including taking and repaying the home loan, so let us consider this aspect first. The principal repayment of home loans is eligible for deduction under Section 80C up to ₹1.50 lakh along with other eligible items. You are also entitled to claim a deduction under Section 24(b) in for interest paid on the home loan. The amount of deduction available would vary depending on whether the property is self-occupied or let out. If you opt for a new tax regime, no deduction is available under Section 80C in respect of repayment of home loan in all cases and for interest on money borrowed for self-occupied house property. In the case of a let-out property, the deduction would get restricted to the taxable amount of rent received under the new tax regime as you are not allowed to set off or carry forward any loss under the head of income “Income from House