PREPAYING HOME LOAN, THINK AGAIN

Prepaying a home loan is one of the most vital elements of any loan, and it refers to the payment of the loan before the estimated time. A home loan prepayment is computed with the use of a prepayment calculator that aids you to evaluate the effect of a prepayment of your home loan. While prepayment may be advantageous to borrowers, but in the case of a lender, it might not be so as their policies get affected. So, if you are thinking of prepaying the home loan, think again. However, they further allow partial prepayment or full prepayment with a set of terms and conditions. 

What is a Home Loan Prepayment Calculator?

Home Loan Prepayment Calculator assists in understanding the effect of partial payment of your home loan. Using a home loan prepayment calculator is easy as you only have input on the loan details and the amount you want to prepay. After entering the details mentioned above, the calculator will show you the results of EMI saved and tenure saved.  

Before the prepayment of your home loan, here are some of the factors that matter:

  • The period at which the loan tenure stands.
  • Prepayment charges implemented by the lender.
  • Availability of sufficient funds for prepayment. 
  • The nature of home loans such as fixed-rate or floating rate.
  • The damage of tax benefit.
  • Considering to prepay other higher-cost loans before the one you have decided to pay. 

Here are some detailed factors to consider before prepaying your home loan:

Funding necessities: Make sure that you have enough funds for your financial plans such as travel abroad, marriage, etc. before considering a prepayment of your home loan. You should not be in a position where you have overextended your funds to prepay your home loan and are lack funds to achieve a financial goal. In addition to that, you should make sure that you have sufficient funds available for misfortunes, medical emergencies, etc.

Stage of your home loan: The key advantage of prepayment is the decline in interest discharge. The interest is highest while the home loan is in the initial stage. Hence, prepayment of loans after the initial stage may not provide you with the complete advantage of saving on interest. If that’s the case with you, then it is advisable to invest the extra funds.

Prepayment charges: You should consider prepaying your home loan after estimating the cost of prepayment. If you opt for adjustable-rate home loans, then you might save yourself from prepayment charges, However, if you choose fixed-rate home loans, lenders will charge a penalty of 2 percent of the prepaid amount. 

Income from investments: The prepayment expenses should be compared with the profits that can be achieved from investments. If you have the chance to gain profits which are greater in number compared to the home loan interest, then it is advisable to invest extra funds rather than utilizing it to prepay your home loan. 

Prepaying a home loan can be a good idea if you get excessive money, but there are many factors that you should consider before using that to prepay your home loan. Following the factors mentioned above will help you to decide whether you should prepay the loan amount or not.