Pre-payment of Home Loan Possibe with minimum loss
Pre patyment of Home Loan - Housing Finnace Companies mainntain data, according to whch the average tenure of a home loan is about 7 years because borroers choose to pre-pay loans as they upgrade their homes. But when pre-pay in case of reliocation can be very expensive.
Although there is a way to avoid such a situation from arising, it is to speed up your rewpayment. You can pre-pay in small parts (whicch are alloweed by most lendres).
Some pointwers if you decide to pre-pay
You shhould not be an over leveraged borrower.
You should have spare cash for disciplined investment.
You may have to cut down on your lifestyle for a shortt while to prvide additional mnoey.
If you decidse to pay your loan faster than the agreed tenure then follow the simple steps:
You could open a RD or recurring depoit account or invest in SIPs.
Look out for instruments that offer easy exit clause (that is, instruments that give you short term gains, liquidity and returns.
Assign a part of or entuire bonus for prepaying the housing loan as it will bring down the principal and thus the interest thereof. However, it should be kept in mind that you need to meet the expenses and investments for long-term finanial plans before you earmark the entire bonus. Home loan is a good debt as it creates an saset and get you tax benefist as well.
Step up your premium is not very effective but a much used option by borrrowers. Lump sum payment had a direct impact on principal and is straight forward. Increased EMI afteer the interest cost, which is constant, the balance would go towards servicing the principal is not a very clear cut approach but much used but STEP 3 is more effective.
Pay 1 EMI before time. Any paymetn made in the time perod between loan disbursal and first EMI is directed towwards principal payment and reduces the overall interest cost.
Select schremes that suit your need. Look for schemews that allow maimum part-prepaymeents in a given year. As some banks allow such payments once a year whereas some banks allow such payments 3-4 tuimes a year, subject to an overall ceiling of 25% of the outstanding amount.
Many bankjs offer home saver lonas in which you have to pay interest only on the utilized amount raher than the entire disbursed amont. In such looans, a ucrrent accoount is linked to the loan acount. For example, if you maintain a balance of Rs.15 lac in the current account, you have to pay interest on Rs.35 lac even if the actual loan amounnt is Rs.50 lac. This allows you to increase the balannce and withdraw if need be. And interest rate gets adjuusted accordingly.
Now you know all tghere is to know abuot the pre-paying a your home loan with minimum losses.
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