Fulfilling the dream of purchasing or building a house is not at all an easy task. To build a dream home, one needs a huge investment. People who fail to arrange a huge amount at once, end up getting a home loan. While talking about the home loan, the banks or lender gives us the required amount by conditionally owning the property. Whenever we borrow any amount, we all want to clear the debt as soon as possible. But when you are taking a loan, there is a tenure time for making the debt, and here is also an option of prepayment. Want to prepay your home loan? Here is how you can do it.
What is a Home Loan Prepayment?
Prepayment means paying the EMI of your loan before the due date comes. Generally, if anyone has enough amount of cash, he or she plans to pay up the loan early. Using a home loan prepayment calculator, you can calculate the home loan prepayment, which also helps you to evaluate the impact of partial prepayment on the exact home loan. The prepayment of home loans allows you to reduce the EMI or tenure or both EMI and tenure as per one’s financial requirements. Before going for prepayment, one should know that the total prepayment amount should be at least three times the existing EMI that you are paying.
How much will be charged for Home Loan prepayment?
As a borrower, you have the power of deciding to close the particular home loan. If you have enough amount, you can repay the loan fully or partially before the tenure period to reduce the monthly EMI burden. In this case, the bank charges a penalty that you need to pay to the bank to clear the loan. There are two ways of closing a loan from the bank, either you can prepay from your savings, or you can transfer the loan to a different bank where you are getting a lower rate of interest.
Why is the prepayment penalty charged by the lender on Home Loan?
Some of the loans are designed for a certain number of years to earn the interest for the bank, such as 30 years Home Loan, and according to that, the interest rate that is offered is lower than the loans with shorter tenure. So, if anyone pays the loan before its tenure period, the bank may face a loss. To safeguard itself from any potential loss, the bank charges a penalty fee for prepayment on Home Loan. It is also noticed that the borrower or the customer like to transfer the loan to other banks for the low-interest rate. To deter the customer from doing so, the bank charges the penalty. There are also some guidelines by RBI and National Housing Bank or NHB to safeguard the interest of the loaner and let them make the prepayment.
Home loan Prepayment rules
There are several cases where the banks and NHB can not charge a penalty for prepayment, such as there will be no penalty charges if the individual has availed a Floating Rate Home Loan, also if a loaner is prepaying a Fixed Rate Home Loan by his or her source and not by borrowing money from another bank.
As now you know all the details of prepayment on Home Loan, it will be much easier for you to deal with it. Before going for any option of prepayment, do research, have a discussion with the lender and then make a decision. It will benefit you in many ways and also allows you to save much.