As per reports compiled in 2019, FY 2018 recorded around Rs.25,000 crore being disbursed every month in loans by major Indian financial institutions. Among these, home loans recorded a substantial growth, which comes to an average of 3.5% per quarter.
With an increasing number of individuals now availing housing credits, it is essential to understand how these financial liabilities can be cleared sooner. One of the most convenient options to do so is to opt for prepayment.
The option for home loan prepayment can prove helpful, though one needs to keep the following tips in mind. The trick to faster prepayment of home loan is often considered to carry multiple issues, and the following tips can help a borrower reap the most benefit.
Check other financial liabilities
It is vital to check existing financial liabilities before considering prepayment of a home loan. While prepayment can be very helpful, not being able to meet existing financial liabilities can be detrimental to the overall finances of a borrower. It is important to maintain existing repayment plan with other financial liabilities while prepaying a housing loan.
Check additional charges
Among numerous important factors that one should keep in mind when prepaying a home loan, the most essential is to check the associated fees and charges. While few financial institutions do not levy any additional charge for the prepayment of a home loan, some lenders may levy a percentage of the payable sum as a fee. This charge should be taken into account while prepaying a home loan.
Use a calculator
A home loan prepayment calculator should be used to check the amount of money to be paid as interest while prepaying a home loan. While this can be used to check how much an individual is saving on his/her loan repayment, borrowers should also take into account the additional charges to get the exact financial layout.
Note prepayment time
It is important to note the time when a borrower should repay his/her loan. Typically, financial institutions clear the larger portion of the interest amount during initial EMIs. As a result, it is best to opt for home loan prepayment at the beginning of the loan tenor, when a major portion of the interest is also left to be paid.
Borrowers should keep the above-mentioned factors in mind, while also understanding the numerous benefits which are offered on prepayment of a home loan. Among the numerous ways to pay off the home loan faster, prepayment is a common feature that offers several advantages.
Prepayment reduces the total amount of interest paid since it reduces the repayment tenor on a home loan. With the number of EMIs reducing, borrowers have to clear a lesser number of interest payments, thereby reducing the expenditure on the same.
Part-Prepayment and Foreclosure
For individuals considering repaying their whole home loan amount, it is important to note the additional benefits of foreclosure.
While part-prepayment reduces the financial liability, foreclosure clears a borrower of the same liability. As a result, the mortgage asset is also released by the financial institution.
Borrowers of home loans should attempt to prepay their loan amount with the above pointers in their mind, while potential borrowers should try to opt for a shorter tenor. Home loan prepayment is a convenient option for reducing interest while before applying for the loan.
In case a borrower is foreclosing his/her loan, they should also check the different expenses related to it. Typically, the foreclosure will attract some additional charges which should be checked before beginning the procedure.