Home Loan Pre-payment: What is the advantage or big disadvantage of paying home loan before time, loan takers must know this thing..

Home Loan Pre-payment: Before prepaying your housing loan, ensure that you have sufficient funds for other household needs such as marriage, foreign travel, or emergencies. Avoid overburdening yourself to repay the home loan, as this may leave you short of funds when you need them. Prepaying from your savings may require you to borrow from elsewhere for these needs, which may increase your difficulties.

Make sure to consider the funding requirement-

Before prepaying your housing loan, ensure that you have sufficient funds for other household needs such as marriage, foreign travel, or emergencies. Avoid overburdening yourself, as this may leave you short of funds when you need them. Prepaying from your savings may require you to borrow from elsewhere for these needs, which may increase your difficulties. Make sure that you are financially comfortable.

Income from investments-

The cost of prepayment should also be compared with the returns from investments. If you have the opportunity to earn more returns than the interest on your home loan, it would be better to invest the surplus funds instead of using them to prepay the home loan. Since a home loan is a long-term loan, you can invest in equity for a long time to get better returns. The longer you invest in equity, the lower the risk and the better the chances of getting returns.

Stages of home loan-

The stage of a home loan in which you are making the prepayment matters a lot. In the initial stage of a home loan, the interest component in the EMI is the highest. In such a situation, if you make the prepayment in the initial stage of the loan, then interest worth lakhs of rupees will be saved. This will give you double benefit. Your EMI will be reduced, and the amount of lakhs going towards interest will be saved. But 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.

Settle the loan with higher interest first-

The interest rate on home loans is usually lower than the interest rate on other loans like personal loans or credit card loans, so, if you have more than one loan and want to reduce your debt, it is better to repay the loan with higher interest first.

Tax exemption for home loans-

You are entitled to claim tax exemption of up to ₹1.50 lakh per financial year on repayment of the principal amount of the housing loan. You can also avail tax exemption on the interest paid on the housing loan. Apart from this, due to the government's focus on 'Housing for All', tax incentives on housing loans may increase in the coming time. If you finish your housing loan through prepayment, then you will stop getting these tax benefits; tax benefits will be reduced on part prepayment.

Prepayment Charges-

Before considering the prepayment of a home loan, it is important to understand its cost. Usually, there are no prepayment charges on adjustable-rate home loans, while fixed rate home loans may attract charges. Before deciding on prepayment, make sure to know all the terms and conditions from your bank or financial institution.

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