Pre paying your home loan

 Prepaying your Home Loan

Pre-closing the home loan means closing the loans before the completion of actual tenure

Home loans are usually availed for a long tenure by borrowers to minimize the EMI pressure. 

Prepayment is a facility that allows you to repay your home loan before the completion of your tenure.

Prepaying your home loan means savings on interest and reduction of principal outstanding.

Usually, customers opt for prepayment when they have surplus funds.

Pre-closing a loan means clearing off your dues with a single payment.

Prepayment means making part payments on your loan over and above your EMIs.

Before Prepaying your home loan

The interest rate at a record high

Compare your return on investment with the cost of a home loan

Repay higher-cost loans first

Consider your cash need for emergencies, goals

When to Prepay home loan

Interest rate record high

The higher part of EMI goes towards principal repayment

Bulk income, bonus incentives received

Prepaying your home loan

There are two ways by which you can go for prepayments.

The first approach is by increasing your EMI

The second is by doing bulk prepayments

First approach

As income increases, many borrowers can afford higher EMIs. It reduces the overall tenure of your loan because you have increased monthly payment 

How an EMI increase helps

EMI increase of Rs5000 on the loan of Rs30 lakh @ 8% for the tenure of  20 years reduce tenure 13 years 9 months. Total interest savings is 10.74lakh.

On the loan of Rs30 lakh @ 8% for the tenure of  20 years, you are paying Interest amount Rs30,22,367, Principal amount is Rs 30,00,000, Total amount is Rs60,22,367

Second approach

There are many bulk payments that you may receive occasionally like bonuses, incentives, arrears, and sometimes rewards.  The borrower can choose to make bulk partial prepayment and even opt for reducing the loan tenure along with it.

How partial prepayments help

Annual prepayments Rs50000/- on the loan of Rs30 lakhs with an interest rate of 8%  for 20 years reduce the tenure to 14years 8 months. Total interest savings is Rs9.07 lakh.

If your home loan amount is lesser and you prefer tax-saving the prepayment may not be the right option for you