Prepayment of home loan – Should I prepay it?

Should I pre­pay my home loan amount? This is one of the com­mon ques­tions among home buy­ers. Here we are talk­ing about pre­pay­ing the home loan par­tially and fully. I under­stand pre­pay­ing the home loan fully is quite dif­fi­cult but it may be applic­a­ble to few investors.

Before we dis­cuss about pre­pay­ment, let us under­stand the clause on pre­pay­ment penalty. Major­ity of the banks do not have restric­tions on pre­pay­ment of home loans unless and until these funds used for pre­pay­ment comes from your own fund. Bank will require proof that the funds are your own.

Pre­pay­ment of home loan – Par­tial repayment

You can pre­pay the home loans based on your agree­ment with the lender bank. Every month along with your EMI, you can pay addi­tional amount based on your afford­abil­ity as a home loan prin­ci­pal com­po­nent. This will reduce your prin­ci­pal bur­den and the prin­ci­pal will keep reduc­ing over a period of time. In the ini­tial months, the inter­est com­po­nent is high and the prin­ci­pal com­po­nent is less of an EMI, so pre­pay­ment of prin­ci­pal will reduce your home loan lia­bil­ity to a larger extent and will bring down the inter­est costs sig­nif­i­cantly. I call it as “Sys­tem­atic home loan repay­ment”. For salaried employ­ees, this is one of the best options avail­able. Check with your lender bank and start pre­pay­ing your prin­ci­pal early. In case, if you receive a lump sum amount, you can pre­pay the home loan partially.

Pre­pay­ment of home loan – Full repayment

If you have enough sur­pluses to pre­pay your home loan, you can pay the entire home loan with pre­pay­ment penalty. I sug­gest if you can pay off the home loan do not hes­i­tate to pay the pre­pay­ment penalty as you will be out of the loan liabilities.

Pre­pay­ment of home loan – Conclusion

Pre­pay­ment of home loan is a good option avail­able to all home loan buy­ers. My sug­ges­tion is try to pre­pay as much as you can in the ini­tial years of your home loan tenure to reduce the inter­est cost bur­den. Do not pre­pay your home loan by affect­ing other invest­ment options.

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5. Tax ben­e­fits on home loans