Loan Balance: 12 Lakh
1. EMI must be around 12k pm @20 yrs loan. More if tenure is less.
2. So if you continue with loan, 1.4 lacs approx get off your taxable income. which means a saving of 42k plus per year assuming I am taxed @30%. Add cess etc also.
3. For 12 lacs interest@9% per annum is 1.08 lacs. Now let's see at what pt it would be indifferent to continue or discontinue the loan.
i.e
108k-42k = 66k ,
So on investing these 12 lacs, if you can generate more than 66k per annum then continuing with a loan is better than repaying it. This translates to 5.5% returns. And taking a tax rate of 30% then the required return is 5.5%x 1.3= 7.15%.
So, if you can generate a return of 7.15% and above per annum on your 12 lacs loan, then, by all means, don't return the home loan and continue. But if the return is less than 7.15%, then you are better off returning it.
Also, take a long term view. And remember taking a home loan is much difficult again on the same asset, and sometimes there would be an opportunity to make good money if cash is available on hand.
We hope this would help you with an informed decision.
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