[S_U_N]

Originally Posted by NPV

Here's a very simple but powerful Excel spreadsheet that can help with all kinds of 'What-If' (pre-pay ? If so how much, when, etc) analysis for your home loans. I have found this very useful so far. Hope this helps.

Replying to this after 5 years (sorry about that), but that spreadsheet seems to be blank.

I am really interested in such a 'what-if' calculator which can help understand if I should go for a loan for 10 years with higher EMI or 15 years with lower EMI.
Assume that I will receive a large sum next year which can possibly reduce the borrowed amount from say Rs. 50 lac to Rs. 25 lac.

I have never taken any loan earlier.

[freedom]

Originally Posted by S_U_N

I am really interested in such a 'what-if' calculator which can help understand if I should go for a loan for 10 years with higher EMI or 15 years with lower EMI.

Identify the max EMI you can pay for next 2 years then calculate the period for the loan amount and EMI. This will help you close the loan earliest with lesser interest out go.

Other option.
If you have spare cash or get spare cash which you do t want to use to prepay just put it in a mutual fund (depending on your risk appetite)

What the most profitable also depends on your income tax bracket.
But if you are someone who can't get good sleep with a huge loan on your head better to just prepay and get peace of mind.

[S_U_N]

Originally Posted by freedom

Identify the max EMI you can pay for next 2 years then calculate the period for the loan amount and EMI. This will help you close the loan earliest with lesser interest out go.

Other option.
If you have spare cash or get spare cash which you do t want to use to prepay just put it in a mutual fund (depending on your risk appetite)

What the most profitable also depends on your income tax bracket.
But if you are someone who can't get good sleep with a huge loan on your head better to just prepay and get peace of mind.

I have a sizable chunk already in mutual funds and stocks. Currently that portfolio has taken a beating and so I am not keen on withdrawing much from that source at the moment, hoping for a bull run in a year or two.

Meanwhile I did some calculations using SBI's online calculator and it seems:
1. On a loan of 60 lacs, the EMI is about 64000 for 15 years and with total interest amount of Rs. 55 lacs.
2. The same loan for period of 10 years means the EMI is 80000 and the interest is only Rs. 35 lacs.

So, we can save 20 lacs over a period of 5 years at the risk of trying to pay a bigger EMI from the very beginning.

Now in this thread, since we are discussing the prepayment scenario, I would assume that we are doing what is described in point 1 and then trying to prepay as much as possible say in 8 years with EMI of 64000 and some lump sum of Rs. 25 lacs in between. I still don't know how to calculate for that scenario.

[androdev]

Originally Posted by S_U_N

So, we can save 20 lacs over a period of 5 years at the risk of trying to pay a bigger EMI from the very beginning.

@S_U_N you are mixing up future and present. Today's Rs100 is very different from Rs100 after 5 years. I am not a finance pro but I will tell you this, there is no free money on the table. It really doesn't matter whether you take short duration loan and aggressively prepay or whether you take a long duration loan and put the extra monthly savings into mutual funds. It all depends on how the future plays out and your appetite for a certain strategy. As long as you focus on basics like improving your earnings (by doing well in career, etc.) and having a discipline of reasonable savings and parking them in the right places then it will work out okay whichever path (short term/long term/prepay) you choose.

High EMI forces you to save aggressively which you may not be able to do if you had to pick between buying mutual funds vs buying an iPhone.

[freedom]

Originally Posted by S_U_N

I have a sizable chunk already in mutual funds and stocks. Currently that portfolio has taken a beating and so I am not keen on withdrawing much from that source at the moment, hoping for a bull run in a year or two.

I am not asking you to redeem MF or other investments. What i am suggesting is infact investing more if you get liquid cash after getting the loan.

E.g.
ROI 10.75
Loan Amount 10L

EMI for 20 yr period ~ 10062

No you are someone who can probably afford to pay say 20K, you can start off the loan with a lesser period.
EM for 5 yr period ~ 21426

You do pay 2x the EMI but you get over with the loan in 5 yrs instead of 20!!

Now imagine you won a lottery for 1L during that 5 yr period. You have 2 options

Make part payment of 1L against the outstanding principal and reduct the period further keeping the same EMI

OR
Invest that 1L in MF and build a corpus for the long term and continue paying the 20K EMI as usual

When you do part payment your Principal gets reduced so you can either reduce the EMI outgo or keep the same EMI and reduce the time period.

Originally Posted by androdev

@S_U_N you are mixing up future and present. Today's Rs100 is very different from Rs100 after 5 years. I am not a finance pro but I will tell you this, there is no free money on the table.

Completely agree.