4 Steps to Prepay Your Home Loan in half the time and Create Wealth for Yourself.
The previous generation that used to save for years to buy their home, but the current generation prefers possession of a house very early in their life, which has been made possible due to easy accessibility and lower interest of home loans. But a home loan is generally the biggest financial debt most people take in their lifetime.
As conventional wisdom says, it is always better to get rid of any kind of debt, as it not only saves the interest cost but also provides the sense of financial freedom. But home loan comes at the lowest interest rate and offers significant tax saving opportunity as well. So the answer to the question is not straightforward. One needs to consider multiple factors before making the decision.
In recent times we witness reduced home loan rates and an upward trending equity market. This is one question i often get it from my clients, which is if you have money in hand, what should you do, prepay a part of your outstanding loan or invest into equity or property?
Would you want to prepay your home loan given the rate of interest is less than 9 percent and Invest in equities where the long term average returns are 12.5% and which will outperform your Mortgage interest.
Over the years of investing, mutual funds had
proven to be an easy investment tool to accumulate wealth.
Here is a simple four-step strategy to help investors prepay their housing loan as well as accumulate wealth over time using Mutual Funds.
Invest one-third of the monthly housing loan instalment in diversified / Multi Cap every month and do not withdraw the amount for the first five years.
Albert Einstein hasn’t simply said that compound interest is the 8th wonder of the world. Compounding can do wonders to your money. 12% annualized return can double your money in 6 years. And 15% annualized return can double your money in less than 5 years!
Best performing Multi Cap Funds can deliver these returns with 5 year time frame.
Because Besides high return and diversification of investment, what makes mutual funds an attractive and wise investment choice is compound interest. Compounding is a magical concept which allows you to automatically multiply your money.
Evaluate the portfolio after five years. If the return exceeds 15 percent on a compounded basis, withdraw the entire amount that has been accumulated over the first two years.
Reviewing funds at regular interval is always a critical task, just to check up the progress and the direction of the fund performance.
And……Use the proceeds to partly prepay the outstanding home loan and keep the EMI as constant factor and reduce your tenure.
Repeat the above steps and evaluate the portfolio after every three years, hereon.
After the loan is repaid, convert the monthly instalment, along with the original investment, into a monthly systematic investment in mutual funds.
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