As per a recent survey, nearly 62% of respondents considered this is an ideal time to enter the real estate market. Due to the repetitive rate cuts by RBI, lenders are offering home loans at lower interest rates, prompting aspiring borrowers to avail a home loan to invest in a property. Apart from this, convenient terms like balance transfer, part-prepayments and loan foreclosure entice borrowers to avail the funds without hassle.
Nonetheless, homeowners often face a dilemma when it comes to making loan prepayments. The dilemma lies in whether one should make part-payment of a home loan or invest the extra sum that he received as a bonus. Commercial lenders and NBFCs allow loan prepayments without penalty, making it a possible choice for any borrower who wants to become debt-free faster.
Following is a discourse on the factors to consider before choosing to initiate the loan prepayment process.
3 Points to consider before borrowers apply for home loan prepayments
- Rate of return
One must calculate whether the benefits from investing a particular sum of money are higher than the amount saved through interest. It would be sensible to make prepayments if the rate of return from investment is lower.
- Credit Utilisation
Paying higher EMIs for a home loan is inconvenient as the financial burden increases for a particular borrower. Therefore, it is advisable to prepay a home loan and reduce credit utilisation. It will be difficult for a person to pay monthly instalments for an extended tenor should he/she face any sudden monetary crisis.
- Home loan tax benefits
Before opting for loan prepayments, one must weigh home loan tax benefits against prepayment. As the principal amount and the subsequent interest charges reduce when a borrower prepays, the home loan tax benefits may also consequently decrease.
Additionally, one can plan the prepayments with a calculator to enjoy maximum tax benefits.
Apart from this, there are other important factors to keep in mind when prepaying a home loan, like charges from a lender, a loan tenor and reflection of prepayments on the CIBIL report.
Further, there are some other ways to trim the home loan tenor, other than making prepayments, that borrowers should learn about before proceeding.
Ways to reduce tenor for a home loan
- As a part of a home loan procedure, one should make higher EMI payments to cut the tenor short.
- It is advisable to choose a floating interest rate as it allows an applicant to enjoy the benefits from rate changes in the market.
- Lastly, existing borrowers can always opt for a home loan balance transfer. Shifting to lenders offering better deals at a lower tenor is an appropriate choice for individuals looking to alleviate financial burden in the long run.
Furthermore, it is also essential to focus on the benefits of loan prepayments.
Importance of loan prepayments
Loan prepayments help in saving substantially on the interest outgo. The amount that one can save on home loan interest depends on when he/she chooses to make the loan prepayment. As the interest component is higher during the initial phase of a home loan repayment, it is advisable to prepay the loan in this stage to maximise savings.
To sum up, no one likes to be in debt for a long time, and as investing in home loans can financially straining, one should opt for loan prepayments to reduce the burden. Further, lenders do not levy additional charges on opting for this facility, thus allowing to streamline the entire process.
Financial institutions also provide pre-approved offers on these advances to ensure a simple and seamless loan transaction procedure. These offers are available on the home loan, loan against property, etc. You can check your pre-approved offer by submitting your and contact number.
With these few factors into consideration, borrowers can opt to prepay their borrowed amount without hassle.