For most people, Home Loan Prepayment is a concept that is not only alien but also intimidating. However, the truth is that home loan prepayment is a simple way to reduce the overall interest burden of your home loan, and paying off your loan as soon as possible is the most recommended way to go about it.
Every individual wants to be debt-free and homeownership is a significant step towards achieving financial stability. Several financial institutions offer home finance options which vary in interest rates, loan amount and repayment tenure. Home loan EMIs are divided into two components- Principal and Interest payments. With each EMI, the principal amount decreases, and interest payments are based on the outstanding amount.
What is Home Loan Prepayment?
Home Loan Prepayment is the ability to repay your home loan, either partially or entirely, before the original due date. This option is available with most home finance providers. You can make prepayments anytime during the loan tenure, as long as you won't be defaulting on your EMI payments. It is essential to identify the Home Loan Prepayment procedure followed by your finance provider, including the minimum amount required for prepayment, the frequency allowed, applicable charges, and any other documentation required.
Why Should I Opt for Home Loan Prepayment?
The primary reason to opt for Home Loan Prepayment is to save on the overall interest paid on the loan. The earlier you prepay your loans, the lower is the interest burden, hence reducing your monthly installment amounts or shortening the loan tenure. Apart from that, it ensures that you become debt-free much quicker than the original loan tenure. This saves on the interest costs and allows you to direct the money towards more profitable endeavours like investments.
How Can I Calculate My Home Loan Prepayment Savings?
The Home Loan Prepayment Calculator tool is an excellent and easy way to calculate your potential Home Loan Prepayment savings. Many finance providers offer online prepayment calculators that allow you to input data like your outstanding loan amount, current interest rate, and the prepayment amount you are considering. Based on these inputs, the calculator estimates your potential savings.
Consider an example. Suppose you had taken out a home loan of 50,00,000 at the rate of 8.5% for a tenure of 20 years. After paying your EMIs for five years, you realise that you have a surplus of 2, 00,000 in your savings account and decide to make a part-prepayment towards the loan. If you use the Home Loan Prepayment Calculator, you can estimate your savings as shown below:
First, calculate your existing home loan EMI:
Loan Amount= ₹50,00,000
Loan Tenure =20 years
Interest Rate = 8.5%
EMI= ₹45,812
Now after paying the EMI for 60 months, you are left with an outstanding loan amount of ₹43,06,474.
With a surplus of ₹2,00,000, you decide to make a part prepayment, bringing your outstanding loan amount down to ₹41,06,474. Using the prepayment calculator, you can see that this changes your loan tenure to 17 years and 3 months, saving you ₹2,60,909 in interest. You would have to make 3 fewer monthly payments, and your monthly EMI would come down to ₹43,199, saving you ₹9,722 per year for the remaining tenure of your home loan.
This is a simple example of how you can use a home loan prepayment calculator to assess your potential savings. By inputting some data, you can see how much you could save by making a prepayment towards your loan.
Conclusion
Home Loan Prepayment is an excellent way to save on interest costs, shorten your loan tenure, and become debt-free faster. It is essential to understand your lender's prepayment process and any associated charges before deciding to make a prepayment. By using a Home Loan Prepayment Calculator, you can estimate your savings before making a prepayment. As a result, it is advisable to use this tool to make informed decisions about your finances.
As a borrower, it is imperative to understand your finance options, compare the housing loan interest rate, and choose the right home loan finance provider that suits your needs. Home Loan Prepayment is a viable option for those looking to save interest costs and become debt-free faster. Use the Home Loan Prepayment Calculator to calculate your savings, make an informed decision, and benefit from a comfortable yet affordable loan repayment.
