When I have taken my home loan, I used to pay Rs 20K per month for the home loan. And when I used to get some bonuses, I used to pay that also to prepay the home loan as soon as possible. The problem is I didn't knew about Finances at that time.
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Now why it's bad financially because I could have earned much more than prepaying it. The interest rate was around 9% per month for the home loan whereas the stock market was giving more than 12% at the same time. Now instead of prepaying, if I would have invested in the market I would have gotten more than 12% returns.
I know prepaying the debt is better because then you don't have to worry about the debt. But when you are investing, you are keeping that money in teh stock market. So whenever you want you can clear the loan with that amount. So even though the debt is there, you have the loan amount saved with you which is giving good amount rather than you prepaying the loan.
Now the advantage of home loan is that it is lowest interest loan out there. So even if you have the money, it's better to keep the loan going on and use that money wisely to get more returns than the loan interest rate. Also some bank gives better returns when you have the good CIBIL Score, so again you can get lower interest rate because of CIBIL too.
So the best thing to be done is that, if you have an EMI of say Rs 20K and you can prepay upto Rs 25K, then use that 5K to invest the money in stock market rather than prepaying it. That 5K will fetch you atleast 3% extra returns and in long run, this 3% can create a good portfolio.
