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If your annual interest outgo is well above Rs 2 lakh

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Designer Replica Bags While it is alright to use a part of the bonus for fulfiling one’s long held aspirations, the entire amount should not be squandered on such things.A substantial part of the bonus should be allocated towards taking care of pressing financial concerns.One long term liability that many families have is a home loan.A part of the bonus should go towards reducing this liability.However, you need to weigh the pros and cons of the decision carefully.While in some situations it is a good idea to pre pay the home loan, in others it is not, as we shall see.This typically happens at the beginning of your home loan tenure.If your annual interest outgo is well above Rs 2 lakh, it is advisable to pre pay the loan.This will result in significant saving on interest cost in the long run.Let’s say that in January 2017 you took a loan of Rs 50 lakh for 20 years at the rate of 9.25 per cent.Your interest outgo for the 12 months of 2017 will be Rs 4.58 lakh.Your projected interest payment over 20 years is Rs 59.90 lakh.However, you receive a bonus of Rs 1 lakh in April and decide to use it to pre pay your loan.This reduces your interest cost for 2017 to Rs 4.52 lakh a saving of a meagre Rs 6,000 for the year.However, this has a major impact on your long term interest cost, which now comes down to Rs 55.05 lakh a saving of nearly Rs 5 lakh.2. When interest rates are lowAnother opportune time to consider pre paying a home loan is when interest rates are trending low, as is the case at present.Lending rates have bottomed out, with the Reserve Bank of India keeping the benchmark rate unchanged over three bi monthly review cycles.This is a good time to pre pay your home loan.You can make great progress in your repayment schedule by pre paying a part of the loan at the current lower interest rate.Doing so will put you in a stronger position vis a vis your loan liability at the point when interest rates start rising again.Therefore, even as your equated monthly installments (EMIs) start rising, pre payment would lower your long term interest costs and you’ll clear your debts at a more economical rate.Suppose, you have a home loan of Rs 50 lakh for 20 years at the rate of 10.50 per cent. Your projected 20 year interest cost is Rs 69.80 lakh.. Designer Replica Bags

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