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Things to remember before foreclosing your home loan

Are you foreclosing a home loan? Keep in mind some important factors to take an informed decision.

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The article talks about various factors one should consider before taking the decision to foreclose home loan. It points out that there is a continuous tussle in the mind of homeowners between saving interest paid to bank or saving taxes paid to the government. To close a home loan, you need a huge amount of money in a short period.

The article states that the first step to being taken before closing a home loan is to ensure financial health. This is important because of unforeseen contingencies that can happen at any point of time.

The article further states that once the financial security is ensured, after then you can consider another factor i.e. the trade-off between interest paid on loan and tax-saving you get on the same. In case the interest outgo exceeds the amount of tax deduction, then it is better to close that home loan.

The article cautions that before doing that you should consider other outstanding loans carrying higher rate of interest such as Personal loan, Vehicle Loan, Education Loan, etc. It may happen that post tax, cost of a housing loan may be lower than other loans.

The article elaborates this point with the help of a table, where interest rate is mentioned for different types of loan.

Source : 99acres