{"id":586,"date":"2021-06-13T10:38:52","date_gmt":"2021-06-13T10:38:52","guid":{"rendered":"https:\/\/www.loanfasttrack.com\/blog\/?p=586"},"modified":"2022-07-23T13:26:25","modified_gmt":"2022-07-23T13:26:25","slug":"13-important-things-to-remember-before-prepaying-your-home-loan","status":"publish","type":"post","link":"https:\/\/www.loanfasttrack.com\/blog\/blog\/mortgage-loan\/13-important-things-to-remember-before-prepaying-your-home-loan\/","title":{"rendered":"13 Important Things To Remember Before Prepaying Your Home Loan"},"content":{"rendered":"\n
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Prepayment\nof housing loan means paying an additional amount to your home loan over and\nabove the principal & the interest amount. Prepayment on home loan can\neither be in full or in parts. You can either choose to repay your home loan\nfully which is also referred to as home loan foreclosure\/ home loan pre closure or make partial repayment of\nhome loan as and when you have the surplus funds. This housing\nloan partial repayment is generally referred to as home loan part\npayments. Although a home loan is your long-term financial commitment and\nprepaying will help you to save a substantial amount of the interest outgo, it\nis important to understand its salient features before you choose to prepay. <\/p>\n\n\n\n

In the following article, we will discuss the important things that you must be aware of before you choose to pay off your home loan in full or choose home loan partial repayment<\/p>\n\n\n\n

  1. Do Not Use Your Emergency Funds<\/strong><\/li><\/ol>\n\n\n\n

    The funds which you set aside for your emergencies\nsuch as medical treatment, hospitalization, life covers, insurances, etc. are\nyour emergency funds. By using your emergency funds, you defeat its very\npurpose and hence you may have to borrow additional funds later in the alarming\nsituations of financial emergencies. Therefore, keep your emergency funds\nintact and use other alternatives to prepay your home loan. If you fall short\non the emergency funds consider applying for a quick personal loan<\/strong><\/a> or mortgage loan<\/strong><\/a>. Also, Click to learn the difference between the two<\/strong><\/a>. <\/p>\n\n\n\n

    Also Read: <\/strong>Loans You Can Avail Against The Secured Pledge Of Your Property.<\/strong><\/a> <\/p>\n\n\n\n

    2. Do Not Liquidate Your Investments <\/strong><\/p>\n\n\n\n

    Apart from the emergency funds, also do not liquidate\nthose existing investments which you have invested with a specific purpose to\nmeet your financial goals such as savings for your children\u2019s education, higher\nstudies, marriage, savings for your old age, etc. By liquidating you are again\ndefeating the purpose of the investment and may have toavail a\nloan<\/strong><\/a> or additional loans in the future to meet your financial commitments. <\/p>\n\n\n\n

    Also Read: <\/strong>Everything That You Must Know Before Applying For An\nEducational Loan.<\/strong><\/a><\/strong><\/p>\n\n\n\n

    3. Consider Liquidating Your Surplus Investments<\/strong><\/p>\n\n\n\n

    You may consider using the surplus funds on your\ninvestments such as the investments in fixed deposits (FD) & recurring\ndeposits (RD) with the banks and PF withdrawal for\nhome loan prepayment. The interest you earn on investing in fixed and\nrecurring deposits may be less as compared to the interest you pay towards the\nhousing loan. The interest earned on the FDs ranges from 3%-6% p.a. while the\ninterest payable on home loans ranges from 7%-10% pa. Therefore, make a smarter\nmove and use your surplus funds on the deposits to prepay your home loans.\nAdditionally, you may also consider the returns on the investments of equities\nand mutual funds to prepay your housing\nloan<\/strong><\/a>. <\/p>\n\n\n\n

    Also Read: <\/strong>10 Easy Ways To Know How To Repay Home Loan Faster<\/strong><\/a>.<\/strong><\/strong><\/p>\n\n\n\n

    4. Avoid Lenders Having Pre Closure Charges For Home Loans<\/strong><\/p>\n\n\n\n

    You must compare and evaluate the lenders –\nBanks\/NBFCs\/HFCs and their best home loan schemes<\/strong><\/a> before you apply for a housing loan<\/strong><\/a>. When you prepay the lenders\nlose their interest earnings and hence, they charge a penalty for prepayment of\nhome loan. The conditions and the home loan\nprepayment charges vary with the lenders and range from 2%-5% on the\noutstanding loan amount. Remember there are no foreclosure\ncharges for home loans with floating interest rates but if you have a\nfixed home loan interest you have to pay a penalty\nfor paying home loan early. It is therefore important that you carefully\nselect the lender before you apply for a home loan<\/strong><\/a>. Consider applying for a home loan with ICICI Bank<\/strong><\/a> & a home loan with HDFC Bank<\/strong><\/a> who has nil housing loan pre closure charges on floating home\nloan interest rates and low housing loan\nforeclosure charges on fixed home loan interest rates.<\/p>\n\n\n\n

    \n ICICI home loan prepayment charges\n &\n ICICI home loan partial payment Charges\n <\/td>\n 0% – 2% on outstanding loan amount\n <\/td><\/tr>
    \n Home loan prepayment charges HDFC \n &\n HDFC home loan partial prepayment charges\n <\/td>\n 0% – 2% on outstanding loan amount\n <\/td><\/tr>
    \n Canara Bank home loan prepayment charges\n <\/td>\n 0% on outstanding loan amount\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    Also Read: <\/strong>All Costs & Hidden Costs In Home Loan.<\/strong><\/a><\/strong><\/p>\n\n\n\n

    5. Ensure Your Prepayments are Reflected in the CIBIL Reports<\/strong><\/p>\n\n\n\n

    Whenever you prepay your home loan, don\u2019t forget to\nget it documented by collecting a NOC certificate for home loan closure<\/strong><\/a> from the lender\nBank\/NBFC\/HFC. Your prepayment will be reflected in your CIBIL reports and\nhence repayment of a home loan before time is a sign of your financial fitness\nwhich further improves your CIBIL scores and your creditworthiness<\/strong><\/a>.<\/p>\n\n\n\n

    Also Read: <\/strong>Know How Your Home Loan Inquiry Impacts Your CIBIL Scores.<\/strong><\/a> <\/p>\n\n\n\n

    6. Choose Wisely Between the Loan Tenure and EMI<\/strong><\/p>\n\n\n\n

    When you make part payment in home loans, the prepaid\nlump sum amount is deducted from your outstanding home loan principal and you\npay interest only on the balance principal outstanding. Also, when you make\npart payments, either your loan tenure is shortened or your home loan EMI<\/strong><\/a> reduces. Depending on your\nrequirements, choose wisely between the two as the reduction in the EMI will reduce\nyour monthly burden while the reduction in the tenure will save on the total\ninterest payable to the lender. Know how much you save on your revised EMIs\nwith a home loan\npartial payment calculator<\/strong><\/a>. <\/p>\n\n\n\n

    Also Read: <\/strong>Importance Of Home Loan Part Pre Payment Calculator.<\/strong><\/a><\/strong><\/p>\n\n\n\n

    7. Prepaying the Loan at Beginning of the Loan Tenure <\/strong><\/p>\n\n\n\n

    For any loans availed the majority of the interest is\npaid during the initial years of the tenure. Therefore, the home loan EMIs\nduring the initial years have a higher interest component than the principal\namount. The home loan prepayment benefits\ninclude savings on interest payable. Hence, when you prepay \/ foreclosure your\nloan during the initial period of the home loans you save on the interest\ncomponent. However, if you are planning for additional loans and if your\nexisting home loan is hampering your eligibility<\/strong><\/a>, you may consider repaying your loan\neven at a later stage.<\/p>\n\n\n\n

    8. Tax Saving on Your Home Loan<\/strong><\/p>\n\n\n\n

    Your home loan qualifies for income tax exemption for\nhousing loan repayment under 80(C) for a principal amount up-to Rs.1.5 Lakhs\nand under section 24b of income tax for the interest on housing loan up-to Rs.2\nLakhs. If you prepay, you may not get the home loan prepayment income tax benefit<\/strong><\/a>s on a home loan<\/strong><\/a>. The interest which you will save by\nprepaying is likely to be much higher than the tax you will save.  <\/p>\n\n\n\n

    9. Evaluate Your Savings Through <\/strong>Home Loan Balance Transfers<\/strong><\/a><\/p>\n\n\n\n

    You may choose to switch your lender for more savings<\/strong><\/a> on interest. This ensures\nthat your existing investments are not liquidated to repay the loan and you\nalso save on the interest amount. If your existing interest rates are high, click to know how to deal with the increasing interest\nrates of housing loans<\/strong><\/a>. <\/p>\n\n\n\n

    Best Home Loan\nTransfer Rates<\/strong> <\/p>\n\n\n\n

    \n Bank Name<\/strong>\n <\/td>\n Home Loan Balance Transfer Rate Of Interest <\/strong>\n <\/td>\n Processing Fees<\/strong>\n <\/td><\/tr>
    \n ICICI\n Bank<\/strong><\/a>\n <\/td>\n 6.80% p.a. – 7% p.a.\n <\/td>\n Starts from Zero\n <\/td><\/tr>
    \n HDFC\n Ltd.<\/strong><\/a>\n <\/td>\n 6.75% p.a. – 7.40% p.a. \n <\/td>\n Starts from Zero\n <\/td><\/tr>
    \n Canara\n Bank<\/strong><\/a>\n <\/td>\n 6.90% p.a. – 8.90% p.a.\n <\/td>\n Rs. 10,000 + GST\n <\/td><\/tr>
    \n Click\n to get the complete chart on interest rates for <\/strong><\/a>home\n loan with prepayment option<\/strong><\/a>\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    Kindly refer to the links given below to know the\ndocuments required for a home loan balance transfer<\/strong><\/a>. <\/p>\n\n\n\n

    \n For\n Salaried<\/strong><\/a><\/strong>\n <\/td><\/tr>
    \n For\n NRI<\/strong><\/a><\/strong>\n <\/td><\/tr>
    \n For Self-Employed<\/strong>\n <\/td><\/tr>
    \n Proprietorship\n Firm<\/strong><\/a><\/strong>\n <\/td>\n Partnership\n Firm<\/strong><\/a><\/strong>\n <\/td>\n Private\n Ltd. Company<\/strong><\/a><\/strong>\n <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

    Also Read: <\/strong>Why Home Loan Interest Rates Of NBFCs Higher Than Banks<\/strong><\/a>.<\/strong><\/p>\n\n\n\n

     10. Evaluate if Investing the surplus is Better Than Prepaying<\/strong><\/p>\n\n\n\n

    Check if the interest you save by prepaying the home\nloan is greater than the potential returns you earn by investing the same\namount. If the interest you save is higher, you should prepay the home loan\n& if the returns on investments are higher you should invest. Well, the\ndecision will be your personal preference depending on your needs.\nAdditionally, you may also plan to grow your money by diversifying some portion\nof your surplus in the investments and remaining for prepaying and reducing\nyour home loan burden. Grow your money by diversifying the investments in these 8\nbest plans to save.<\/strong><\/a><\/p>\n\n\n\n

    Also Read: <\/strong>Everything You Must Know About SIP<\/strong><\/a>.<\/strong><\/p>\n\n\n\n

    11.  Going for EMI is Better Than Opting for Pre-EMI<\/strong><\/p>\n\n\n\n

    Pre-EMI is paid when you purchase an\nunder-construction property while EMI is applicable when you take possession of\nthe property. (Additional Read: <\/strong>Important loan facts while purchasing an under-construction\nproperty<\/strong><\/a>) In EMI you repay both the principal as well as the interest amount to\nthe lender, while in Pre-EMI you pay only the interest to the lender. Also, the\nPre-EMI period is not a part of your home loan tenure. Therefore, if you have\nsufficient income you should opt for the full EMI option right from the beginning\nbecause in Pre-EMI you cannot prepay a loan until you start paying the\nfull-EMIs on your property. Also the earlier you start with full EMI, the\nsooner you will be debt-free.  Click to read our full article – If Pre-EMI is better than\nfull EMI<\/strong><\/a>.<\/p>\n\n\n\n

    Also Read: <\/strong>Quick Guide To Difference Between Home Loan Builder Case\n& Resale Case<\/strong><\/a>.<\/strong><\/p>\n\n\n\n

     12. Do Not Forget to Take Heed of Your Current Age<\/strong> <\/p>\n\n\n\n

    Remember if you are nearing retirement, foreclosing\nthe home loan with your surplus funds will be a suitable option because\ngenerally after retirement you have access to limited income which causes\ndifficulty in the loan repayments. Also, as your age increases your medical\nexpenses might increase resulting in home loan defaults. Therefore, try to\nprepay your home loan as early as possible before you retire. <\/p>\n\n\n\n

    Also Read: <\/strong>Home Loan For Senior Citizens<\/strong><\/a> & <\/strong>Reverse Mortgage Loan For Senior Citizens<\/strong><\/a>. <\/strong><\/p>\n\n\n\n

    13. Choose Which Loan You Wish to Prepay First<\/strong><\/p>\n\n\n\n

    Nowadays having more than two loans in your name is a\nvery common scenario. If you are having more than two loans, for instance, a home loan<\/strong><\/a>, a personal\nloan<\/strong><\/a> (PL) \/ business loan<\/strong><\/a> (BL), and a car loan<\/strong><\/a>,  it is often difficult to decide which loan\nyou prepay first. Under such circumstances consider prepaying your unsecured\nloans i.e., PL & BL over the home loan because such loans usually come with\na shorter duration and have high interest rates which keep your monthly outgo\nhigh and they also eat a majority of your loan eligibility. Also, you do not\nenjoy any tax benefits on personal loans. Hence it is better to prepay your\nunsecured loans first over the home loans. Click to know everything about the unsecured loan i.e., the\nbusiness loan.<\/strong><\/a><\/strong><\/p>\n\n\n\n

    Also Read: <\/strong>How To Manage Your Multiple Loan Repayments<\/strong><\/a><\/strong><\/p>\n\n\n\n

    Points To Remember<\/strong><\/p>\n\n\n\n