Making part-prepayments on your home loan reduces your overall repayment burden to a great extent, as it reduces your principal, and thus your interest. However, prepayments don’t just refer to making an extra payment when your finances permit it. Make prepayment of home loans with careful deliberation to see how you can save more, gain a stronger financial foothold, and reduce your lengthy home loan tenor too.
1. Choose a lender who does not charge extra for making prepayment
While prepaying is a rewarding experience for you, it is not so for your lender who stands to lose on interest. So, your lender may charge you a certain amount as prepayment fees. Usually, a home loan on a floating interest will not incur such charges, but if you have a fixed interest home loan, you may be paying extra to make part-prepayment. So, select a loan like a Bajaj Finserv Home Loan that has no charges on floating rates and low charges on fixed rates.
Additional Read: Difference Between Fixed And Floating Interest Rate
2. Ask your lender to reduce the loan tenor against prepayments instead of EMIs
Using the home loan EMI calculator available on lender websites, you may have chosen your EMIs with care to ensure that you are paying the most you can, while leaving room to pay for other fixed and variable expenses. When you get a salary hike or a bonus, you can make prepayments; however, ensure that your prepayment reduces your tenor and not the value of subsequent EMIs. This will help you close your loan quicker, and pay less interest too.
3. Make sure your prepayments reflect in your CIBIL report
Making prepayment of home loans is a sign of financial fitness. This means you are able to deal with your existing financial obligations efficiently and are able to bring about balance in your income and lifestyle. So, be alert about the acknowledgments your lender sends to you and CIBIL owing to your prepayments. CIBIL updates their database 45–60 days from your date of payment or your lender’s intimation, whichever is earlier. Remember to apply for a CIBIL report at least once in three months to check for the updates. The reduced home loan obligation creates a positive implication on your credit score and improve your credit worthiness.
4. Weigh your prepayments against home loan tax benefits
Your home loan allows you to claim deductions for both principal and interest repayments.When you prepay, your principal and subsequent interest reduces. So, ensure you claim the tax benefits in other ways when planning to prepay. The best thing to do is to plan your prepayments in advance using the home loan prepayment calculator in such a way so that you can get maximum tax benefits yet are able to reduce your principal considerably with every prepayment.
Additional Read: Home Loan Tax Exemptions and Benefits
5. Check whether investing the amount is better than prepaying
In the same vein as above, you can also use the home loan prepayment calculator to check whether the interest you save when you prepay is more than the potential earnings from investing the same amount. If yes, prepay, and if not, consider investing.
Considering these 5 factors will help you make the most of prepaying your home loan and saving money in the long run. Thinking of factors like prepayment and foreclosure before taking a home loan is a smart move. If you’re in this stage, the next step for you to become a homeowner is to use the home loan eligibility calculator to find out if you qualify for a loan from your chosen lender.
Bajaj Finserv brings you pre-approved offers for personal loans, home loan, business loans and a host of other financial products. Not only does this simplify the process of availing financing, but also helps you save on time. All you have to do is share a few basic details and check out your pre-approved offer. Need instant financing? Think it. Done with Bajaj Finserv.
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