Reasons to Prepay Your Home Loan Amount

When you choose to go for home loan part prepayments, or foreclose your ongoing loan, here are some of the major benefits you can expect to be in store for you:

Limited Loan Interest Outflow

The interest component of a home loan compounds monthly and the final loan repayment amount comprises the initial home loan amount you had borrowed and the interest that has been accumulating over it. When you foreclose a home loan or make part prepayments, you either lower the home loan amount remaining or pay it off before the end of the repayment tenor, saving significantly on the home loan interest component.

Relieves Home Loan Repayment Bandwidth

Home loan EMIs are usually sizable monthly obligations that can use up the loan repayment capacity, leaving you only limited options for other financial and investment commitments. If you reduce your home loan repayment amount by making part prepayments, you free up your home loan repayment capacity to take on other obligations to provide for your family or build your wealth. 

Entails No Additional Costs

Borrowers who have opted for floating interest rate home loans tend to save more, as lenders do not levy any fees or penalty charges on part prepayments or foreclosure of home loans. The option is available after a borrower has paid one EMI, and in the case of partial prepayments, the amount must equal the sum of at least one home loan EMI. Using a home loan EMI calculator, you can check the EMI prepayment schedule before time and plan your finances accordingly.

Borrowers who are keen on availing of tax exemptions on home loan repayment may be at a slight disadvantage if they choose to prepay the home loan. That being said, the advantages of closing the home loan may outweigh the tax implications. Borrowers are, therefore, advised to consider the financial aspects before coming to a conclusion.

Read Also: Plan your Home Loan Better with a Home Loan Calculator