I am 35, with my wife and two children aged 4 and 7 as my dependents. I have just bought a home on a loan from HDFC for Rs 26 lakh, for a 9.5 years tenure and am paying 10.25 per cent interest on it. My monthly EMI is Rs 36,500 and I have stopped my mutual fund investments five months ago to enable purchase of this apartment. After payment of the EMI, I have Rs 30,000 disposable income every month. I want to know if it would be sensible to increase my EMI to Rs 66,500 and finish my home loan earlier or keep my EMI as it is and invest the Rs 30,000 in mutual funds?
At your age and situation, protecting the financial future of your dependents is a must. You should first look for an adequate life insurance policy by way of a term cover. This policy should be for a sum assured that takes into account the home loan you have taken with 8-10 years of your annual income.
You are currently paying Rs 36,500 as EMI, which you can increase by an additional Rs 30,000 every month. Doing so will reduce your home loan repayment time by almost half. However, you will not be able to invest anymore till such time that the home loan is repaid. A way to strike a balance is to increase your home loan repayment, and also invest small sums in mutual funds and stay invested to achieve your other financial goals like future needs of your children.