Your Queries – Loans: Pay a Heavier EMI Instead of Waiting to Prepay a Lump Sum

By Chaitali Dutta

Home loan interest rates are rising now. I have a new 10 year loan. Should I double the EMI amount or accumulate a lump sum to pay off part of the principal?
—Dhiraj Kumar

In case you have excess funds monthly, increasing the EMI is an appropriate route at this time when interest rates will continue to trend higher. Interest is calculated on a daily declining balance of your home loan, so early repayments save you more interest.

What is the process I need to follow to take out a gold loan for a year as I need money for an emergency?
—Ashok

The first option would be to find out from your current bankers where you have your salary account or have most of your money. The chances of getting a better deal and better service would be higher. If your banker does not grant gold loans, you can approach certain financial institutions which are the market leaders in gold loans. It is advisable to go to known and reputable organizations for your gold loan, as you want to get your original gold ornaments/coins intact once you have paid off the loan. The process is similar for banks/FIs. Ornaments are first checked for purity of gold, weighed and approximated. You will be sanctioned with a loan based on gold valuations. The paperwork is then completed before the loan is disbursed into your account.

I am an elderly person and my retirement funds are in the term deposit schemes of a nationalized bank and earn a very low rate of interest. If I invest Rs 5 lakh each in private banks, will my money be safe?
— hidden name

DFs (or any deposit) that offer a higher yield have inherent capital risk. The inherent risks are liquidity risk and default risk. Under the DICGC guarantee, the deposit amount (including interest) up to 5 lacs per person per bank is covered. If you opt for interest payments, you can opt for Rs 5 lakh deposit. If you opt for cumulative deposit, the amount at maturity should not exceed Rs 5 lakh to be covered by DICGC.

The author is the founder, AZUKE Personal Finance Advisory (www.azukefinance.com).
Send your questions to [email protected]

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