Should you repay your home loan or buy a second home?

Sukanya KumarRetailLending.comThis festive season, with bonus in hand and being in the mood to spend, the extra cash always ask us few questions. What to buy? What not to buy? Most importantly, what to do with the spare funds? Those who have a home loan running, can pay off their home loan at least partially, if not fully. The other attraction is to buy another new home with the cash in hand, as many lucrative offers are run by builders.Which one is preferable?You must consider the following two sets of aspects before taking the decision.About home loan:1 Are you saving tax by keeping the home loan? Is it optimised or you pay heavy interest and save little?---> You can partially repay your loan as paying interest in excess to the lender which has no direct tax-savings makes no sense for you.2 Is your home loan under and subsidy scheme from builder?---> Never repay a loan if the interest is paid by a third party! You are then saving for the builder and not for your own self. Exercise the option till it is available and then think of repaying.3 Are you paying Pre-emi (interest only) or EMI (with principal repayment too)?---> Paying only interest actually increases your cost of acquisition of the property. Hence, better pay off whatever you can and reduce pre-emi. However, some lenders do not allow you to partially pre-pay when the loan is not completely disbursed! Hence, try not to draw down a few installments and pay from your own reserve and negate it.4 Is the rate of interest trending down or up?---> If the rate of interest is moving south, then you may save money because of that reduction and can think of investing your own money elsewhere, expecting a bonanza.5 Are you at fixed rate or floating?---> Fixed rates do attract penal charges while pre-paying. You may not wish to get penalised and hence may want to hold that pre-payment idea.About new home:1 Is the property you are looking to buy is ready or under-construction?---> A ready property can start fetching you revenue through rentals or by stopping you current rental (since you shift to the newly purchased home). So, it can be considered, if you are getting a suitable deal (read: price).2 Is there any interest subsidy offer by the builder?---> If builder is willing to foot your home loan interest till possession, then you can indulge. It's a lower risk buy.3 Do you need to take another home loan for the second property?---> Think twice before you check yourself in for another home loan. Calculate your finance and plan for the next five years at least. Your emotional decision should not jeopardize your lifestyle.4 Is this a good buy?---> Ask others who bought the property already. Their experience will count. Also check the location and speed of construction. Check builder's credibility. Price, of course is pivotal.5 Is it for self-use or investment?---> Investment required different kind of planning. If you are a seasoned investor, you will know that. If it is for self-use, please consider each family member's convenience like distance from school, spouse's office, parent's willingness to shift location etc., so that you do not regret your decision later.Hope the above input helps you in some little way to decide.Happy good loaning! Happy home buying!!