Prepaying Your Home Loan? Read This First
High real estate prices have made Home Loans a necessity. Yet, once you have a Home Loan, it feels like a burden. Prepayment of Home Loan is an option. But is it the right option for you? And what steps should you follow to prepay your loan? A Home Loan Prepayment Calculator could be of help. Plus, here are some tips to guide you.
Steps You Should Follow to Prepay Your Home Loan
Check With Your Bank
The first step is to contact your bank about the Home Loan. Check with the bank about how soon you can start making prepayments. Lenders generally allow prepayment only after a certain period. Find out if there is a prepayment penalty. Also, ask about the possibility of making prepayments. If the prepayment amount is not too large, there may be no penalty fee.
Review Your Finances
Use a Home Loan prepayment calculator to test out different prepayment scenarios. Next, study your financial situation. Look at your savings, investments, expenses, and liabilities. Can you comfortably take on the extra burden of prepayment? If not, you should wait awhile.
Calculate the Value of Prepayment
Paying off the loan may seem like your best option. Indeed, it is a big responsibility off your back. But paying it off at one go may not be feasible. Besides, is this the right financial decision? Yes, a Home Loan is a liability. But you do get tax benefits of up to Rs 2 lakh on the interest repaid. Remember, any money that you shift to the loan is money that you do not invest. An equity investment, for example, could bring high returns. Calculate the current and future benefits and disadvantages of prepayment vis-à-vis investing.
Once you have carried out these preliminary steps, work towards the actual prepayment:
Increase your EMI or make part payments
Talk to your bank about increasing the equated monthly instalments (EMIs) on your Home Loan. A higher EMI allows you to pay off the loan faster. But make sure to review your financial situation first. Most banks will also allow you to make periodic part-payments. This way, you do not have to increase the EMI. You can simply work towards the prepayment of Home Loan whenever you have surplus cash.
Do a Home Loan balance transfer
Are you paying excessively high interest on your loan? Negotiate for a lower rate with your bank. If that does not work, a Home Loan Balance Transfer is a good option. Through this, you can shift the unpaid principal loan amount to another bank at lower rates.
Carry relevant documents
However you may decide to pay off your Home Loan, be sure to carry the relevant documents. This includes a photo ID like a PAN card, a voter’s ID, or a driving license. You may also need to carry along your chequebook.
Close the loopholes
The last step involves taking care of the documentation. Once you have paid off the loan, ask for an acknowledgement from the bank. Did you submit any post-dated checks to the bank when taking the loan? Ask for the unused checks to be handed over to you.
Prepayment of Home Loan is a big deal. So make sure to do it right. Cut corners if needed. Just make sure to review your finances before taking any major step.