Half of India does not know at which stage of loan should prepayment be made. If you understand this math, you will save lakhs and the bank will keep watching.

Nowadays most people take loans from the bank for all kinds of work. When it comes to buying a house, people especially need a home loan. Home loan is a long-term loan. Its duration can be up to 30 years. It becomes very difficult to pay its EMI continuously for a long time. Due to this, the loan becomes a burden. The way to get rid of this loan quickly is home loan prepayment. But most people do not know at which stage of the loan this prepayment should be done. If you really want to get rid of the loan as soon as possible by making a prepayment, then first understand about this. If you understand this math, you will save lakhs of rupees going in interest and the bank will keep watching.

At which stage of the loan you are making the prepayment matters a lot. Home loans are long term loans, so banks do not want to take any kind of risk, so they charge the highest interest in the initial stage of the loan. If you look at the EMI chart, you will clearly see that in the initial years the principal amount in the EMI is less and the interest part is more. In such a situation, the bank is getting a huge interest from the EMI you are paying, the principal amount reduces very slowly in the initial years. If you want to take advantage, then make the prepayment in the initial period of the loan. This will reduce your principal amount rapidly and you will save lakhs of rupees in interest. Prepayment of loans in the mid-to-late stage cannot give you the full benefit of saving on interest. In such a situation, it is wise to invest the surplus funds.

The EMI chart is given in the picture above. Understand it like this- Suppose you have taken a loan of Rs 75,00,000 for a tenure of 10 years at an interest rate of 9.55%. Now look at this chart. Your initial EMI is Rs 97,254. In this, the principal amount is only Rs 37,566, while the interest is Rs 59,688. In this way, as you move forward, you will see that the interest is decreasing and the principal amount is increasing. From this you can understand that the sooner you decide to make a prepayment after the loan, the more you will be benefited and you will save lakhs of interest.

A big advantage of prepayment of the loan is that it directly reduces your principal amount. Prepayment means that you pay some additional amount in addition to your monthly EMI, which directly reduces your principal. Suppose your loan is of Rs 28 lakh and you make a prepayment of Rs 2 lakh, then it will become Rs 26 lakh. Due to the reduction in the amount, your interest will also decrease. Prepayment can also be done in many ways. Know about this in the slides below.

According to the information given on the website of Bank of Baroda, one way to prepay a home loan is to start prepayment with a small amount and keep increasing this amount every year at a fixed rate. For this, you will have to save a little every year. You can make prepayment with this amount of savings.

You can also reduce your principal by paying a fixed amount every year. You plan your expenses for the whole year and make a prepayment by giving a fixed amount every year. This will reduce your principal amount rapidly and your loan will reduce rapidly.

One way to reduce your principal amount through prepayment is to pay more than your calculated EMI. You will have to do this every month. This method is also very helpful in ending the debt burden quickly.

If your financial condition has improved and your financial status is good now, then you can pay the entire amount of the home loan in one go before the tenure is over and completely end your loan.

Consider the decision to prepay your home loan only after understanding the cost of prepayment. Usually banks do not charge any prepayment fee on adjustable rate home loans, but prepayment fee can be charged on fixed rate home loans. Before making loan prepayment, know about all the terms and conditions from your lender and then decide on loan prepayment.