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Should you prepay your loan?

If you prepay, you save lakhs on interest payments and become debt-free.

When you choose not to prepay, you can continue to claim tax benefits for principal payment under 80C and interest payment under Section 24B (For home loans).

Example- You take a home loan of 50 lakhs at 8.5% for 30 years. After these tax benefits, the actual cost of your home loan in the first year comes to 7.1%, 6.68% in year 10 and 6.16% in year 15

Because home loans are long term, you can realistically get 10%+ returns if you invest the amount, which is better than prepaying a home loan which will cost less than 7%.

And if there are prepayment penalties, the actual amount you save by prepaying would also be lower.