After learning a thing or two about home loan EMI, housing loan interest rates and home finance, you get to decorate your house, host parties, and make endless trips to the hardware store. But along with these joys come some not-so-fun responsibilities, such as paying off your home loan. But what if we told you that you could pay off your home loan faster and save some money in the process? Enter home loan prepayment.
Home loan prepayment allows you to pay off your home loan before the due date, thereby reducing your overall interest payment. And with the help of a home loan prepayment calculator, you can calculate how much you can save by prepaying your home loan. So, without further ado, let’s dive into the world of home loan prepayment.
What Is Home Loan Prepayment?
Before we get into the nitty-gritty of home loan prepayment, let’s first understand what it is. Home loan prepayment is the act of paying off your home loan before the due date. This can be done in part or in full, depending on your financial situation.
Why Prepay Your Home Loan?
The primary reason to prepay your home loan is to reduce your overall interest payment. When you take out a home loan, you’re not just borrowing the principal amount, but also paying interest on it. The longer the tenure of your home loan, the higher the interest payment. By prepaying your home loan, you can reduce the interest payment and save some money in the process.
Another reason to prepay your home loan is to reduce your financial burden. If you have the financial capacity to prepay your home loan, it can give you peace of mind and reduce your stress levels.
How To Prepay Your Home Loan?
Now that we’ve covered the why, let’s talk about the how. There are two ways to prepay your home loan: partial prepayment and full prepayment.
Partial prepayment involves paying off a part of your home loan before the due date. This can be done either through a lump sum payment or through regular payments. The advantage of partial prepayment is that it reduces your overall interest payment while still allowing you to make regular EMI payments.
Full prepayment involves paying off your entire home loan before the due date. This is typically done through a lump sum payment. The advantage of full prepayment is that it reduces your overall interest payment to zero, thereby saving you a considerable amount of money in the long run.
Using A Home Loan Prepayment Calculator
Now that you know how to prepay your home loan, let’s talk about how to calculate how much you can save. This is where a home loan prepayment calculator comes in handy.
A home loan prepayment calculator allows you to calculate how much you can save by prepaying your home loan. All you have to do is input your current home loans details, such as the outstanding principal, tenure, and interest rate, and the calculator will give you an estimate of your savings.
For example, let’s say you have a home loan of Rs. 50 lakhs with a tenure of 20 years and an interest rate of 8.5%. Your current EMI payment is Rs. 43,391. If you decide to prepay Rs. 5 lakhs, your EMI payment will reduce to Rs. 39,052, and your overall interest payment will reduce by Rs. 9.78 lakhs. That’s a considerable amount of savings!
Tips For Home Loan Prepayment
Before you jump into prepaying your home loan, here are some tips to keep in mind:
- Check for prepayment charges: Some lenders charge prepayment charges, which can reduce the overall savings. Make sure to check with your lender before prepaying your home loan.
- Decide on the amount to prepay: While prepaying your home loan can save you money, make sure to only prepay what you can afford. You don’t want to put yourself in a difficult financial situation by prepaying too much.
- Use windfalls to prepay: If you receive any unexpected windfalls, such as a bonus or inheritance, consider using them to prepay your home loan.
- Keep your emergency fund intact: Before you prepay your home loan, make sure you have enough savings to cover any emergencies that may arise.
- Consult a financial advisor: If you’re unsure about whether to prepay your home loan or not, consult a financial advisor who can guide you through the process.
Home finance refers to the management of personal finances related to owning or renting a home. It involves budgeting for mortgage payments, utilities, property taxes, maintenance costs, and other related expenses. Home finance also includes decisions related to purchasing or renting a home, such as researching housing options, evaluating loan options, and negotiating terms with landlords or lenders.
Prepaying your home loan can save you a considerable amount of money in the long run. With the help of a home loan prepayment calculator, you can calculate how much you can save and decide whether partial or full prepayment is right for you. Just make sure to keep the tips mentioned above in mind and consult a financial advisor if needed. Happy prepaying!