Becoming a new homeowner is a thrilling prospect and selecting the most favourable housing loan is only the start. Making smart decisions through the repayment tenor can help you save more and become debt-free faster, no matter the current home loan interest rate. One way to do this is by prepaying your housing loan with surplus funds, when available. Use the handy home loan prepayment calculator to compute how partial prepayment can help you save on total interest. This handy online tool is available on most lender websites and helps you plan prepayments with ease.
Read this in-depth guide to learn about the many aspects to keep in mind while planning the prepayment of your housing loan.
Understand the implication of reduced tenor versus EMIs
Lenders usually offer two options once you make a part-prepayment. The first one is reducing the subsequent EMIs for your housing loan. This helps you free up more income and use it towards other needs or obligations. The second is keeping your EMIs the same and reducing your loan tenor instead. This helps you reduce the interest you will pay towards your loan. The right decision depends on your finances, so give this a careful thought before you choose one or the other.
Explore balance transfer options for optimal savings
Before making a prepayment, check with different lending institutions to see their current home loan interest rate and consider refinancing your loan. A home loan balance transfer facility is a good solution if the rate you’re paying is significantly higher than ongoing market rates. Keep in mind that this option means you will have to meet the new lender’s home loan eligibility criteria and make necessary payment such as the processing charges.
You can then see if your savings by switching lenders exceed your savings on making prepayments and then take a decision.
Suppress the urge to use saved emergency funds
For most borrowers like yourself, prepaying a large portion of their housing loan with savings is a common decision. However, keep in mind that emergency funds are meant for crises. If you apply this money to prepay your housing loan, then it may detrimentally impact your financial wellbeing later. For instance, this may force you to opt for a loan with a higher rate of interest when there is an urgent financing requirement. So, experts suggest that emergency funds should not be utilised to prepay your loan amount. Instead, ensure you have ample saving for tough financial times and make prepayments out of other surplus funds.
Prepay using planned investment returns
Even when you are servicing a housing loan, it is prudent to plan your investment well ahead of time and continue to grow your wealth while repaying debt. Make sure you choose low, medium, and high-risk options to compound your earnings based on your income, goals, age and risk appetite. This way, you can ensure that your returns or payouts are also timed during the first half of your tenor when prepaying gives you maximum savings.
You can always make use of the handy home loan prepayment calculator to better plan your finances and invest wisely.
Now that you are aware of all the pertinent factors to consider, you can plan your housing loan prepayment with ease. If you’re at the beginning of your journey as a borrower, consider the Bajaj Housing Finance Limited Home Loan for its competitive current home loan interest rate as well as a high-value sanction. It offers up to 30 years for comfortable repayment, a top-up loan option and a simple online application with minimal need for documents. Use the housing loan eligibility calculator to check the loan amount you qualify for and apply online for maximum convenience.