This is something people ask us often. What’s our view?
Yes, a home loan can help you buy a house early in life but it is also a burden which many people want to get rid of as soon as possible. Deciding whether to close a home loan or not is always a tough decision.
Few like to bear the burden of a loan. That said, a home loan is good liability to have if you are staying in the same home. Yes, a good liability. Why?
To claim the tax benefits you are entitled to on interest and Principal paid on the home loan.
Be that as it may, do keep this in mind: pre-closing a home loan is not an isolated decision to take. The move you choose to make on this liability depends on your financial goals (short term and long term), your priorities, the amount of liquidity you have in hand, the cost of the loan, and for how long it has been taken.
To arrive at the right decision, you need to assess the variables and then do the needful. A trusted financial advisor can help you get this right.
Truth be told, there is no right or wrong answer to this question. It’s a very personal choice that is based on how you have planned your life.
The simplest way to see it is so: if you strongly feel closing the loan will comfort you with the thought that you no longer have a big financial burden to meet, it’s a path you should take. But not without giving some thought to the pros and cons of this decision.
Another way to look at this decision is to analyse the opportunity cost of pre-closure.
If your financial advisor shows you that current market conditions are favorable and that you can earn a better return on the amount you will have to use up to pre-close your home loan, then there is no merit in using funds on a less lucrative step like pre-closure.
True, your mind may wish to free itself of the burden of a financial commitment, but if doing so is not in your best financial interests, you need to tell yourself that the short term benefit of freeing yourself of a commitment is not the most desirable one.
The bottom line: pre closure is not a simple yes or no decision. You should always look at it in the context of your overall financial situation, market realities, and life goals. This will help you get it right.