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Steps To Prepay Your Home Loans!

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By Author: Finway
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Owning a house in today's world is a luxury. The prices of real estate are rocket high all the time, and it is almost impossible for an average joe to pay 7 to 8 digit amount at once. Enter Housing loans. Almost everyone these days takes a home loan to pay for the house of their dreams.

This need to own a house and high prices of real estate gave the required push to home loans. Various companies and banks give loans to people to buy not just houses but vehicles, start-ups, even education.

The loan against property can be applied by keeping an asset and requiring an earning individual to repay the loans. The loan can be sanctioned to buy an existing property and build a home at the desired location.

Though loans are usually repaid in instalments decided by the bank, monthly or yearly, a borrower can repay the loan before the allotted time, if affordable. This is known as the Prepayment of loans. There are some steps to follow for the prepayment of loans.

Steps to Prepay home loans

It is essential to understand why the prepayment ...
... of loans is beneficial to the borrower. So when an individual takes a loan from any bank or a financial institution, they repay them in the form of instalments, usually monthly. These instalments are the bifurcated amount in which the original amount of the loan was split. These instalments are taken with interest rates.

The interest rate is the additional amount a borrower has to pay to the lender for borrowing the money. The interest rate acts as a source of income for the lender. So in the end, you end up paying more than the actual amount of the house.

In the case of prepayment of the loan, the borrower can save up on the interest money. This is the process can happen a lot faster if the borrower is a young working individual. The surplus amount from bonuses and promotions can go into the prepayment of loans. The additional responsibilities are less, and more money can be saved when in the 20s and early 30s.

There are a few things to keep in mind before the prepayment of house loans. Housing loans are often low-interest loans and hence to earn good profit out of the loan, the banks or the financial institution often set a payment lock-in period. The majority of the banks have a lock-in period ranging from 1 to 3 years. Within this period of time, the entire loan cannot be repaid.

If the borrower prepays the loan before the lock-in period ends, there is a penalty involved that has to be paid. The floating-rate loans, however, have no such criteria. This means that there is no fixed interest rate and that it keeps changing over the decided period of time depending on various factors.

The interest rate on any type of loan is usually higher in the first few years and eventually is lowered as the tenure comes to its completion. Hence early repayment can save you the amount of interest to be paid in the long term.

One of the ways to prepay home loan is to start small and gradually increase. It means that you increase the amount to be paid every year by saving up more the previous year.

Another way is to pay a higher EMI every month. While paying decided EMI, pay a little extra so as to reduce the amount to be paid in a more extended period.

Another scenario is the full repayment of the loan. If your financial citation improves drastically, then paying a penalty fee for the lock-in period is much more beneficial than paying interest for many years. But this has to be decided by adequately calculating the rate of interest left to be paid and the penalty fee.

Owning a house has become a financial statement in today’s time. More and more people take housing loans owing to the comparatively lower interest rate. This is especially common in urban spaces. For example- taking a home loan in Delhi is way more common than in rural places. It is essential to understand the entire process of loan properly before taking a house loan.

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