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Home Loan

Home Loan Prepayment

While repaying the home loan, you have the option to prepay it before the end of the loan term. Most home loans have the option for full or partial prepayment. In the case that you want to fully prepay the home loan and close the loan, it is known as home loan foreclosure. 

 

Sometimes, if you have a lump sum fund with you, prepayment can be a good idea. However, the most important thing to know in this regard is prepayment charges.

 

The prepayment charges vary from one lender to another and usually range from 2-4%. Some lenders may not take it at all. Every bank/NBFC will have its own prepayment procedure. Once prepaid, you will get an acknowledgement, which will include the prepaid amount, the outstanding loan amount (in case of partial prepayment), remaining tenure (if any) and the new monthly EMI. 

 

In the case that you prepay your loan in full, you will get back your home documents which were with the bank.

 

Home loan prepayment tips

  • It is a good idea to check the prepayment charges at the time of applying for the loan, to avoid any surprises later on.
  • Prepaying as early as possible makes more sense. As we mentioned, in the initial few years, the interest component makes up most of the EMI amount. Hence, if you pay in the earlier years, then you end up saving on the interest payment to the bank/NBFC. However, in the later years, you would have already paid most of the interest back. Prepaying then would not help you save on the interest to be paid to the bank.
  • Don’t forget to get the prepayment acknowledgement letter from the bank. 
  • Follow up on retrieving the original house documents and try to receive it as soon as possible. 
  • Do keep the tax benefits angle in mind when you decide to prepay. 

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