Things to look out for when repaying a loan

K.ARAVIND

Reports indicate that there has been a recent increase in the number of customers switching from one financial institution to another. According to reports, there has been a 20 per cent increase in such changes in housing loans.

The customer has to take a loan from another bank or financial institution to repay the remaining loan amount. After that the EMI of the new loan has to be repaid. This is done when the loan is available at a lower rate than the interest rate of the existing loan.

Some people use it to pay off debts even when they have a large sum of money. Those who pay off their mortgage before the end of the term should take steps to reduce the debt burden only after verifying that they are actually benefiting from doing so. It is only when you look at the term of the loan and the interest payable that it becomes clear whether it is profitable to repay the loan early.

It is best to repay the loan in the first few years after taking out a loan. Most of the equivalent monthly installments in the first year of the loan period go to pay the interest. If we look at the structure of the equivalent month, thisnis clear.

Those who want to repay their mortgage early need to plan their loan accordingly. Repayment of a loan after taking a loan for a longer period of time can lead to higher interest payments.

For a borrower at a floating rate, the interest rate may vary depending on the liability and the equivalent monthly interest rate. However, it is more profitable to invest that amount more effectively than to repay the loan after half of the loan period.

Tax deduction under Income Tax Act 24 (a) for home loan borrowers is up to Rs. 2 lakhs per annum. Those in the higher tax slab can save up to Rs 60,000 on this tax. Therefore, such tax-deductible benefits should be considered before the maturity of the mortgage.

Before using the cash on hand to repay the loan to relieve the debtor, it is important to consider the benefits of investing it effectively before deciding whether or not to repay the loan before the loan expires.