Home Loan Prepayment-Things to Keeps in Mind


A home gives you a sense of fulfillment while also directly increasing your assets. It is always a great decision to take out a home loan to purchase a home for residential use because it puts an end to the miserable cycle of high rent payments and gives you a place to call home. However, it is crucial to get the proper kind of home loan with a suitable tenure and a reasonable interest rate. To make timely EMI payments, you must plan out every expense in advance. 

It could seem difficult to pay off your home loan before the actual period. But you may simply do it if you carefully prepare and make good use of your extra cash. Prepayments are a great strategy to pay off a mortgage quickly, reduce EMI payments, and reduce interest expenses. In order to meet the recent substantial increases in house loan interest rates, current borrowers with surpluses might also consider prepaying their debts. 

There are two options for paying off your home early. You have the option of fully or partially prepaying the remaining balance of your loan.

  • Complete prepayment of the outstanding loan balance is referred to as a full prepayment or foreclosure.
  • Partial prepayment allows you to pay back a portion of your loan balance once or more throughout the loan’s term.

Here are some things borrowers should bear in mind while paying off their home loans early:

EMI reduction choice or tenure

Customers who pay back their home loans have two options: they can choose to shorten the length of their loan or reduce their EMI. The borrower’s discretionary income would grow as a result of the EMI reduction choice, even though selecting the period reduction option would result in greater overall interest expense savings. When choosing between the two options, the borrower should give priority to either reducing the EMI burden to deal with increasing interest rates or reducing the overall interest for the loan. Use the home loan EMI calculator to find the EMI.

Compare savings from home loan balance transfer

Existing customers can transfer their home loans to other lenders at lower interest rates via the home loan balance transfer (HLBT) option. Without affecting the borrower’s liquidity or current investments, the lower interest rate that would be offered if this facility were to be used would lower the overall cost of interest. Because of this, present borrowers should consider the potential financial benefits of switching their loans to lenders offering much lower interest rates. 

Never pay off loans early using emergency savings

To deal with cash shortages and/or pay for inescapable commitments such as continued EMIs, rent, insurance premiums, children’s tuition, etc. due to income loss, establishing an emergency fund is important. The recommended size of an emergency fund is to be able to pay for all of your expenses for at least six months.

Do not redeem investments intended for important financial goals

The majority of home loan debtors frequently redeem their current savings set aside for significant financial goals in order to make prepayments. To achieve their significant financial goals, they would have to take out more expensive loans, which could have a detrimental impact on their long-term financial health and liquidity.


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