If you have borrowed a home loan, then making a prepayment of the loan can prove financially beneficial for you. One of the key benefits you get to enjoy by prepaying your loan is that you get to save a significant amount of money on the net interest. Another key benefit is that you will get complete ownership of your dream house much earlier than anticipated.
If you are not well-versed with the concept of home loan prepayment, here are the things you should be knowing.
What is Home Loan Prepayment?
Before we go ahead and discuss what are the things you should know about home loan prepayment, let us first get familiar with what home loan prepayment actually is. This is actually a facility provided to the home loan borrowers to repay the loan amount ahead of the set loan term. For instance, if you have taken a home loan for a term of 230 months, you can make a prepayment of the whole amount in let’s say 170 months and close the loan.
Dos and Don’ts of Home Loan Prepayment
Before you even think about what you should do and what you should avoid, let me share 4 key questions you need to ask yourself –
How much tax do you get to save?
Are you having trouble managing your EMIs?
How old is your Home Loan?
What is the interest rate?
Well, the answers to these questions will help you decide how you should proceed with the home loan prepayment process. You need to be aware of the fact that some things may not go as planned in the process of home loan prepayment. So, to ensure everything goes without a glitch, keep these dos and don’ts in your mind.
Know your budget
Whether you have plans to buy an independent house or an apartment, you should know that the loan amount varies considerably. If you are planning to build your house from scratch, the charges may increase further. You should choose a location as per your budget and most importantly get the best deal.
Make an informed choice for a loan
Choosing a loan wisely will require hard work, so make sure you have put in your best efforts, especially if you have plans to prepay your loan at some stage. Make sure you have checked all your options offered by different banks and then make your final decision.
Prepay as early as you can
The whole idea behind making a prepayment is to bring down the amount of interest paid and eventually getting yourself free from the financial burden. Most of these loans are designed in a way that your initial EMIs will go as interest component. All in all, if you make a prepayment, you get to save more interest.
Determine the benefits beforehand
Well, in some situations making prepayments may not be the best option. Avoid making hasty decisions and instead, you should first calculate the benefits you can make if you choose to invest the same amount somewhere else and compare with the interest amount of the home loan.
Don’t overlook the benefits of the loan
Home loans can offer you great tax benefits along with lucrative rebates on the principal interest component. This reason is enough to never overlook the tax benefits the loan offers.
Don’t forget to get acceptance for your payment
When you get an acceptance for your prepayment, you will have a written proof that you have made the payment. It will also mention your principal outstanding after making a prepayment and the balance home loan term. Make sure you get it signed and stamped by an authorized representative of the bank.