Is Prepayment Of Home Loans A Good Idea?

By Author: Fayeem
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Anyone who has taken a home loan in Delhi or other similar metro cities will tell you that it’s quite a burden to bear – especially if you belong to the middle income groups. The pressure, however, is less financial and more psychological. No one likes to live with a huge debt over their head. This is where prepayment comes into play. Prepayment means paying back the lone, in part or full, to the lending authority in order to take the advantage of low interest rates.

Also, prepayment isn’t a novel concept either; it has been around for a while, but people in India have been reluctant towards it – until now. Suddenly, we’re seeing a rising number of borrowers who are preferring prepayment as a means of returning the loan money to the banks. You must have heard though that prepayment chokes the borrower’s cash flow; well, according to some of the most erudite economic experts, it’s a myth! If you take the advice of the experts, you can safely partly pay your debt by taking a disciplined approach and by utilizing your bonuses and incentives. According to certain statistics, nearly 70% of all home loans ...
... that had an initial tenure of 20 to 25 years were repaid within the first 7 to 9 years.

Why should you consider prepayment?

As far as prepayments go, you don’t need to wait for the windfall time in the tenure. You can, instead, start making regular prepayments to denude the loan away before the end of the tenure. According to economics experts, people who are in their late 20s and early 30s have a higher probability of being done with their home loan in Delhi and other mega cities within the first seven years of the tenure; the reason is that these people work really aggressively towards getting increments and bonuses and incentives, which ultimately help in the prepayment process.

How to easily make prepayments

1. Begin with a smaller amount and gradually increase it as per your financial growth.

2. Without reducing the EMI, decide upon a certain sum of money that you’d be paying every year as prepayment.

3. If you trust your financial stability, you can increase your EMI and chip away at your loan even faster.

Upon conducting a cost-benefit analysis, you’ll find that it’s not a good idea to pay interest in order to save taxes. According to the experts, instead of paying high interest, you can choose to invest that money in equity funds and the surplus profit that you gain can be used to overcome the tax deficit.