Plan Your Financial Freedom: Master Loan Prepayment with Our Calculator

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Home Loan Prepayment
Home Loan Prepayment

Looking to reduce your home loan EMI burden? Pre-paying your housing loan using a home loan prepayment calculator can be a smart way to go about it. A loan repayment calculator can help you save on high interest rates and bring down your monthly EMIs. Read on to know how you can save more money with a home loan prepayment calculator.

What is Home Loan Prepayment?

Home loan prepayment simply means when you make partial or complete prepayments towards your housing loan before the scheduled tenor. It is a smart move for those who want to reduce their debt burden as the prepayment process typically results in lower monthly EMIs or a much-reduced tenor – either way helping you save a significant amount on home loan interest paid.

How Does a Home Loan Prepayment Calculator Work?

The home loan prepayment calculator is an easy-to-use tool that helps you assess an estimated amount that you can save by prepaying your dues. All you have to do is provide a few details related to the housing loan, such as –

  • Principal amount
  • Loan tenor
  • Home loan interest rate
  • Number of installments
  • Prepayment amount

After filling in these details, you can simply click on the ‘Calculate’ option and the loan prepayment calculator will generate the interest saved on the loan prepayment.

Tips to Prepay Your Home Loan

In case you are wondering how to initiate the prepayment or how far you should raise your EMIs, you can follow these tips to prepay your home loan –

Start small and increase your prepayments gradually

Begin by paying a small prepayment amount initially and then increase it annually at a constant rate. Keep a certain portion of your money aside or use the extra income from your bonus or increments to prepay the loan.

Opt for higher EMIs

Raise your payable monthly home loan EMIs to prepay the loan amount ahead of the scheduled tenor. You will thus be able to reduce the interest burden significantly.

Go for a full repayment

Once you are able to manage your finances better or have enough funds to raise a big sum, use it to pay off the full loan amount before the end of the tenor. 

Benefits of Home Loan Prepayment

Here are the key benefits of going for a home loan prepayment – 

Savings on Home Loan Interest
By prepaying your housing loan, you can save big on the interest paid and also reduce the overall loan tenor. The faster you pay, the more you save. Therefore, to maximize your interest savings, plan your partial or complete prepayments from the initial days. 

Use a loan repayment calculator to compute the reduction in the loan tenor and the interest saved as per the prepayment amount. However, remember that in the case of home loan prepayments, the loan tenor gets adjusted. It would be wise to contact the lender and request the same if you want to make changes to the home loan EMI. 

Freedom from Liabilities
Nobody prefers to be in debt. By paying off the housing loan amount early, you can get rid of your liabilities sooner and focus on other goals. The money you save from the interest can then be used to serve other interests, such as expanding your business or investing. It also leaves you relieved and at peace. 

Eligibility Criteria for Home Loan Prepayment

Any borrower can qualify for a partial or complete prepayment against an existing home loan provided the lender offers this assistance. Therefore, it is important to go through the prepayment clause and loan agreement policy before signing on the dotted line. You should also check with your lender for prepayment charges or penalties, if applicable. 

5 Things to Remember Before Choosing Home Loan Prepayment

Here are a few things to keep in mind before initiating your home loan prepayments – 

Age
You should ideally prepay the home loan amount before retirement. This is because the chances of defaulting are less when you have a steady source of income.

Financial Commitments for the Future
You should consider your future requirements for funds before opting for a prepayment. Since home loan prepayments generally involve an amount larger than your regular EMIs, you may run out of your savings. That is why it is advisable to utilize additional income sources to pay it off instead of splurging all your savings. 

Home Loan Tax Benefit
If you choose to prepay your loan amount, you will not be entitled to avail of home loan tax benefit of up to INR 1.5 lakh on the principal amount under Sections 80C and INR 2 lakh on the interest paid under Section 24(b) of the Income Tax Act. This is a vital point to consider. Opt for the prepayment option only if you are ready to let off your home loan tax benefit. 

Investment Opportunities
Always compare your prepayment savings with other investment returns. If the estimated return is higher, it is better to explore investment opportunities than use it on home loan prepayments.

Prepayment Savings
Assess your savings from prepayments before making a decision. A home loan prepayment is beneficial only if you are saving a substantial amount on your interest outgo. For instance, the interest component in your home loan EMIs is much lower during the later stages than in the initial years. Hence, your savings from prepayment in the later years will not be worth much. 

Summary

To put it in a nutshell, a loan prepayment calculator is a simple and efficient tool designed to help borrowers save money and meet their financial goals. Whether you are looking to refinance housing loans, pay off your loans sooner, or simply assess how much you could be saving by making extra payments, the calculator is a useful resource that can help you make an informed decision regarding your finances.