An MBA graduate took to Reddit to share why he determined to not clear his training mortgage as rapidly as attainable. The Indian Institute of Administration (IIM) Bangalore alumnus mentioned he did so despite the fact that his first intuition was to “pay off his loan as fast as possible”.
The MBA graduate mentioned his first intuition was to repay the mortgage as quickly as attainable.(Representational Picture)
He mentioned he thought being utterly debt-free after paying the mortgage off in three to 4 years after graduating can be good for him. “Sounds like the smartest thing to do, right? Wrong!” he mentioned.
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The consumer said that as an alternative of clearing the mortgage in three to 4 years, he determined to pay it off in eight years.
Why you shouldn’t clear your mortgage rapidly?
The Reddit consumer mentioned that after graduating from IIM Bangalore, he “sat down, did the MBA-style financial analysis, and realised that rushing to repay was not the best move”.
He mentioned one of many greatest causes he determined to not repay the mortgage rapidly was due to the related tax advantages, “which most people overlook”. Beneath Part 80E of the Earnings Tax Act, taxpayers get a 100% tax deduction on curiosity paid for as much as eight years.“If you clear your loan in two to three years, you lose ourt on this major saving. Why not use the full window and reduce taxable income?” he mentioned.
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For the second purpose, the Reddit consumer quoted an instance of a borrower with a ₹20 lakh mortgage. At 9% curiosity, the ₹20 lakh in principal quantity doesn’t keep the identical. “By the time you start repaying, it could grow to ₹25-27 lakh due to accrued interest,” he mentioned.He went on so as to add, that a big a part of the curiosity section of the mortgage is collected by the financial institution within the first few years. It’s because the curiosity element of the EMI is far increased than the principal reimbursement element of the EMI within the first few years.“Instead of throwing all my money into quick repayment, I balanced it with savings and investments,” he mentioned.
“I structured my repayment wisely – ensuring I get tax benefits, and maintain liquidity and investment smartly. And honestly? Best financial decision I made,” the consumer said.
“Lesson learned: Being debt-free fast sounds good but being financially smart is better,” he concluded.
Netizens react: ‘Good determination for him, not us’
A number of Reddit customers posed questions on the state of affairs the IIM graduate defined to assist his monetary planning.
“I think under the New Tax Regime, Section 80E is no longer valid…We have to pay the taxes and the interest, nothing is getting deducted,” a consumer commented.
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“During his repayment tenure, the New Tax Regime was not there. So overall, a good decision for him, not for us, LOL,” one other consumer replied.
A 3rd consumer requested if there are every other advantages apart from tax deductions “because those will not be applicable now”. A consumer responded by saying, “If the growth in your salary is more than interest rates, you are better off paying it as late as possible. But most just do it early for peace of mind.”
“First let me get admission in IIM Bangalore, I will pay off the loan even if it takes eight or 10 years,” a consumer joked.