Sensex being Bullish all the way and touching all-time highs! Seems like a dream come true. But wait, is there more to it or is it plain riding on the waves of the unknown? These are peculiar times and there is no perfect answer to any question as of now due to the dynamic scenario. Then how should you determine whether to stay invested or to pay off your loan?
Here are some pointers which will help you out in making this decision.
Identify the expected rate of return on your investments – This is a little tricky where you should evaluate the current market price against the investment already made.
Calculate the interest you will be paying on the loan – This would be available with you in the nature of the payment schedule, which would be further bifurcated into interest and principal.
Compare expected returns and interest payable – Ideally, if the expected returns exceed the interest payable, then you could think of staying put in the markets.
Assess the liquidity position – However, you also need to assess whether it is really beneficial to spend the cash through loan repayment.
Square off the loan with higher interest – If you have dispensable cash at your hand, then it is better to pay off the loan with a higher interest rate.
Assess the tax benefits with housing loan – Housing loans have tax benefits such as deduction of interest on the loan and 80 C deduction. This may result in a decrease in the effective rate of interest payable.
Try to match your financial goals to arrive at a final decision – Financial goals with long term spectrum would be needed to be matched with long term investment options. So you may want to divert the cash retained by repaying the loan prematurely.
Stay tuned for our upcoming blogs on Will & Estate planning.
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