One of my collegue was having a dilemma about redeeming investments to reduce the home loan or continue paying the EMI. Now the thing is home loan has the lowest interest rate, around 8.2% whereas the investment can give you anywhere between 8 to 15% based on where you have invested.
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But even though the investments give more returns a constant fear of debt on his head is what he don't want. And that's why he asked my opinion about the same. Now he don't have much investment, so if use all his investments to clear the loan then he has to start over. And if he pays the home loan EMI, he will save less.
So what I said is that, to continue his investment and then don't make new investments. Try to lower the principle of home loan by investing extra money. Now using this approach his investments will yield the returns whereas his home loan will reduce by paying extra money. In this way he has to balance both. Because we all know that in linger run investments will give 12% returns so taking out investment doesn't make sense.
But on the contrary if he can take put his PF amount or fixed income amount and become debt free then that's a good option. Because PF usually gives around 8% and then Home loan you are paying 8.2%. Now if you use your PF amount to lower the home loan, you can use the extra money to investments and thus eventually you are moving your fixed income to the equity investments which is any day better. Provided you have emergency fund saved up for any emergencies.
So my collegue actually liked the idea and then we will try tothink about it and then do as he wants.
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