Many people opt for a home loan early on in their lives. Home loans are typically taken to buy a ready to move in or under-construction property. Most home loans range from 15 years to 25 year payback time frame. Since the tenor is long, as the time passes by, many loan applicants get a better hold of finances and with time build the capacity to pay the loan back before time.
Must Read: Why Home Loans Have Become an Inevitable Need in India?
While paying the home loan back and closing it before time may look an undisputed choice, it may not be financially wise. Most lenders build in the interest component to be paid early on this in loan tenor and as time passes by the principal amount is later paid back. An online home loan prepayment calculator can give you a clear break up of the monthly EMIs in terms if the principal and interest components. Here are some home loan prepayment rules that you must bear in mind before deciding to close your home loan:
Home loan prepayment has benefits like it cut down EMIs liability hence freeing up funds for discretionary spending, prepayments typically lowering the interest burden, saving money on the interest payouts and the psychological benefit of being debt-free.
Most home loan lenders offer a prepayment facility subject to terms and conditions. A few may even levy a penalty or charge on prepayment or early closure. The charges could vary from 1% and 3% of the outstanding loan amount and can be a time-consuming process.
Since home loans have an element of tax-exempt and are cheaper compared to many other loans, one must ponder well before closing the loan. You can calculate pros and cons using a home loan repayment calculator, to make the aptest decision.
Additional Read: Things to Know about Home Loan Prepayments
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