Home Loan Prepayment Facility
What is Home Loan Prepayment Facility?
Home loan prepayment facility is a facility extended to home loan borrowers to repay the loan amount ahead of the original tenure. For instance, if you have taken a loan for a tenure of 240 months you can prepay the entire amount and close the loan say after 180 months. On repaying the balance principal outstanding against your loan for the remaining tenure of 60 months your liability towards your home loan repayment will stand discharged.
How is Home Loan Prepayment helpful for you?
The home loan prepayment is helpful when you receive a windfall amount and you can use the amount to pre pay the loan. The main advantage of prepayment is the saving you make on the total interest outflow. You can also prepay partially. If you make a partial prepayment, you are actually prepaying the principal amount thus reducing the balance principal outstanding. Thus, the interest rate on your home loan will now be on reduced outstanding principal lowering your interest outflow.
For instance, if you have a home loan with the following parameters
If in the above instance you want to prepay the entire balance principal outstanding at the end of 120 months then the calculations are
Total amount to be repaid at current EMI if prepayment is not resorted to
Rs 48347.58x120 = 58,01,709.06
Out of this the principal amount is Rs 36,58,518.00
And the interest amount is Rs 21,43,191.60
Thus, if you prepay you will save the interest amount of Rs 21,43,191.60
Rs 36,58,518.00 - 10,00,000 = 26,58,518.00
The home loan EMI will now be calculated on the reduced principal that would be much lower than the existing EMI for the balance tenure of 120 months
Thus, by making prepayment partially you would benefit by paying a lower interest reducing your EMI. If you prepay fully, then you save the interest.
Benefits of Prepayment
The major benefit of prepayment is the reduction in the interest payable. For part prepayment, the reduction in interest due to part prepayment translates into lower EMIs.
How much loan amount can you prepay?
You can make prepayment equivalent to the balance principal outstanding to close the loan earlier than the scheduled tenure without any prepayment charges.
You can prepay partially subject to the following conditions
Are there any fees or service charges incurred when you prepay home loan amount?
Yes, there are prepayment charges if the home loan is taken on fixed rate interest basis and it is 2% of the prepayment amount above 25% of principal outstanding in a year.
What are different modes to prepay loan amount?
The modes of prepaying home loan amount include