When it comes to prepayment of a home loan, it is nothing more than paying off the loan with your extra or additional finances. Housing loan prepayment occurs when the borrower makes partial or full repayment of the home loan before the completion of the home loan tenure. There are certain home loan prepayment rules that you should always keep in mind in this regard.
Lenders give prepayment facilities to the borrowers with that they’ll create partial or full payment of their loan amount before the fixed tenure as chosen by them. It helps the borrowers to reduce both the interest and the principal outstanding amount during the tenure.
How to prepay a home loan?
There are several ways in which you can prepay your Personal Loan in Mumbai. You can both go out completely and repay the loan completely ahead of time, or you can pay off a portion of your debt. You can also work on a combination of both.
- Start small, go up gradually
One way to prepay your home Personal Loan in Mumbai is to start with a small prepayment at the beginning of the loan and increase the amount at a constant rate every year. You can do this by saving throughout the year and spending your savings on prepayments.
- Fixed Prepayment
You can try this by prepaying a fixed quantity towards your principal per annum. You will have to do this in addition to your EMI payments. Plan your expenses throughout the year and make fixed savings every year. Use this savings on prepayments to reduce the principal amount.
- Higher EMI
Another way to reduce your principal amount is to pay more than your calculated EMI. Pay every month that is slightly higher than your EMI. This goes a long way in relieving your debt burden.
- Full Repayment
If your finances have improved tremendously or if you are able to raise a large amount, you can pay off your loan completely before your tenure. However, you may have to pay the penalty for the full prepayment of the home loan.
Things to Keep in Mind Before Prepaying Your Home Loan
- Make sure your prepayments show up on your credit report
Being able to prepay on your home loan is a sign of financial fitness. It shows that you are ready to tackle your current financial obligations while handling your daily expenses. Your repayment history is an essential aspect of your credit score. A lower home loan obligation will have a positive impact on your credit score, thus improving your creditworthiness. Therefore, your prepayment should be documented in your credit score. Financial institutions send your home loan details to the credit bureaus, so make sure to apply for a CIBIL report once in three months to check for updates.
- Choose wisely between EMI deduction and loan tenure.
When considering home loan prepayment, you can either choose to reduce the tenure of your home loan or reduce your existing EMI. If you choose to reduce your loan tenure, you will be able to close your loan early and save more on interest payments. But if your income is burdened by the rising home loan interest rate regime, you can also consider reducing your EMI as per your requirement. In this case, you should not ask your lender to reduce the tenure but to reduce your EMI.
- Effects of Partial Prepayment
If your amount is not enough to foreclose your home loan, you can consider doing part prepayment. If you want to reduce your interest burden, then part prepayment can be very beneficial. Once you have prepaid a part of your personal loan, your lender can reschedule the remaining home loan amount as the principal amount and charge interest accordingly. This will change your EMI. Also, if interest rates are more likely to rise in the future, part prepayment can be beneficial.