I have 21 lakh home loan and my yearly interest amount is around 200000. I take tax benefit on 2 lakhs interest. I have got some lump sum amount. Should I do partial pre-pay of loan or invest the money in some other funds to earn higher returns.
Never hold the home loan just because you are getting tax benefit. To save Rs.60,000 (assuming you are in 30% tax slab), you are DONATING the bank of Rs.1,40,000. Assume that you pay the Rs.60,000 tax and that Rs.1,40,000 will be in your pocket right? How can it is a TAX SAVING? For the sake of saving Rs.60,000 you are giving away your OWN money to bank for the tune of Rs.1,40,000.
Regarding prepayment of home loan, if the loan is less than 5-6 years old, then better to prepay it. If the loan tenure is already cross more than half way mark, then there is no point in prepaying. Also, prepay the loan if your other mandatory goals like kids education or retirements are going smoothly with proper investment. Otherwise, try to fund towards those mandatory goals at first.
Thank you so much for your advice!