Well, these days most prudent borrowers aim to prepay their home loan before the 10 or 15 year loan repayment period. This is in because of the constant rise in the interest rates.
RBI has directed that the LTV ratio (Loan-to-value ratio) is not supposed to exceed 80% . This means, if you have applied for a loan of amount, say, Rs 10 lakhs, then you only get Rs.9 Lakh but if your home loan amount is valued at about Rs 1 crore, then 80 Lakh is the maximum amount that any bank will lend you. With this kind of attitude, the requirements towards your down payments is always at stake and the risk is on the rise. The best way to deal with this is to find alternative sources of investments so that you can pool up your finances towards the repayment of your loan amount within about 5-6 years. You can also try liquidating your FDs or other short term investments.
You can also borrow a personal loan to repay these instruments, only if it is difficult to liquidate them, However, it is always advisable to not opt for a credit card or a personal loan to repay such long term investments because they carry a huge amount of interest rates leaving you in a battle field of repaying your long term investment on one side and repayment of credit card or personal loan on the other.
Options like borrowing against your personal investments, as in, FDs, mutual funds, jewellery, LIPs, which can benefit you since they provide lower interest rates and an easy repayment schedule. But for most borrowers these kind of loans are not available to them if they are term insurance policies and even to those who have not acquired their surrender value. And it as been observed that most insurers do not extend their loan towards ULIPs(unit linked insurance plan). Another option of partial withdrawal can also be considered. But one must remember that PF withdrawals do not attract taxes if they are made after 5 years of continuous employment. But if it is within the 5 year period, only if it is for the purpose of funding your child’s wedding or purchasing your house, it will not attract taxes.
So if your opting to direct you loan repayment towards your LIPs then, borrowing up to 85-90% of the surrender value is possible, depending upon your insurer. The interest rate is to be paid half yearly at an interest rate ranging from 9-9.5%. If in any case, on the event of the policy holder’s death, the dependents will be paid the outstanding amount of the policy after the loan amount has been settled. And also, if there are no emergencies then the loan amount can be deducted at the maturity of the policy.