Any borrower can reduce a load of their home loan by making prepayments for the remaining outstanding balance. Prepaying means making partial or complete payments before the completion of the loan term. You can improve your credit score and significantly decrease the total amount of interest that must be paid by doing this. Therefore, you’ll be able to save yourself from debt pressure. Additionally, if you have the extra money to fulfill those payments as a qualified borrower, you can shut your loan early as well.
The important question is how much to pay or plan for these prepayments. Follow this article from head to toe to learn more about early payments to manage your loan and finances better. Additionally, at freeemicalculator.in you can get several loan-specific calculators, including Home Loan EMI Calculator, Personal Loan EMI Calculator, Car Loan EMI Calculator, and others, to make a balanced and mindful decision about your loan requirements.
Preparing for Home Loan Prepayments
Before their loan term expires, every qualified borrower can make a full or partial prepayment on balance due. Both can be used to pay off the loan early. The following are some additional ways to pay your mortgage effectively:
- Make a Down Payment of 20% or Higher
You can significantly reduce your debt by making a down payment on your loan of a set amount. Furthermore, the interest rate will be lower if your debt load is lesser. This way, the total amount of your prepayment will also decrease. Therefore, consider making a down payment of 20% to 30% of your loan balance. However, manage this payment beforehand when you commit to a loan.
- Make Larger EMIs
Borrowers can drastically lower their debt load by making additional monthly payments over and above the settled Home Loan EMI Calculator amount. For instance, after the 11th year of repayment, a borrower can save up to Rs. 2.4 lakh on total interest payments by choosing to increase their EMIs on a home loan of Rs. 20 lacks by Rs. 5000 per month. By doing this, the loan repayment period will also be shortened by around 36 months.
- Increase the Prepayments Amount Gradually
Another great strategy to lessen the burden of the loan is to increase the sum of payments slowly. Thus, start small and then go up with your amount year over year at a fixed rate.
Home Loan Prepayment Calculator
You can evaluate all of your prepayment alternatives using a safe prepayment calculator. Furthermore, with the home loan prepayment calculator, every debtor can determine how much they might save on interest and how it would influence their EMI in the event that they decide to foreclose on their house loan. To compute the results, you must input the principal amount, loan tenure, interest rate, installments paid, and prepayment amount.
How to Utilize a Home Loan Prepayment Calculator?
Using a home loan prepayment calculator, anyone can compute the sum they can save by foreclosing their home loans with partial/full prepayments. For that, you have to submit the following details:
- Loan amount
- Loan Term in months
- Interest rate
- Prepayment amount
Once that information is entered, you can determine the below three aspects:
- Revised installment amount
- Savings on EMI
- Revised tenure
For instance, if you take a loan of Rs.25 lakh for a tenure of 15 years at an interest rate of 7.3% p.a.
Then, using an EMI calculator, you will see that your EMI is Rs. 22,892.
Now let’s assume you prepay Rs.2.5 lakh at the end of 12 years. As a result, you’ll be saving around Rs.₹1,62,020 on interest, with the tenure reduced by 3 years or 36 months.
Home Loan Prepayment Rules
Banks are required to abide by a set of prepayment regulations circulated by the Reserve Bank of India in 2014. Similar guidelines have also been adopted by Housing Finance Companies (HFCs) to ensure the proper functioning of such financial services.
In the instances listed below, HFCs and banks are bound to impose prepayment penalties:
- Individuals that avail of dual-rate home loans: In a dual-rate home loan program, the interest rate is initially set but subsequently changes to a floating rate. Under this plan, banks may impose a prepayment penalty.
- Fixed Home Loan Interest Rates: HFCs will levy a prepayment fee if you borrow money to repay the loan from another HFC or bank.
- Fixed Home Loan Interest Rates from Banks: When you avail of a home loan at a fixed interest rate from a bank, a prepayment charge is applicable based on the loan agreement.
- Non-Individual Borrowers: All HFCs and banks may impose a prepayment charge for non-individual borrowers.
Under the following circumstances, no HFCs and banks can or are allowed to levy prepayment penalties:
- Dual Rate Home Loan with a Floating Interest Rate: When you make the prepayment while the Dual Rate Home Loan has been shifted to a floating interest rate, no penalties can be charged.
- Prepayment from your finances: If you make the prepayment with your own money and don’t borrow from a bank or HFC, no prepayment penalties cannot be charged.
Individuals availing Home Loans with a Floating Interest Rate: As per the guidelines provided by the RBI, if an individual avails a home loan with a floating interest rate, no prepayment penalties can be levied.
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