What To Keep In Mind While Preparing For Home Loan Repayment

Planning to prepay your home loan? Here are the factors you need to consider.
The thought of being free from the burden of a home loan can be quite exhilarating. The average repayment period is usually 15 or 20 years but it can be prepaid if you plan it properly. The move can lead to freedom from hefty Equated Monthly Instalments or EMIs but you will lose the tax benefit that comes with it. Alternatively, the amount to be used for prepayment can be utilised for another purpose or even investment and the loan amount can be repaid at a suitable time. The choice, of course, depends on the benefit available from each option. According to industry experts, prepayment is a wise choice if the amount had been taken under floating rates. But under a fixed rate, the bank may deduct a certain percentage.

Reasons Behind Early Repayment

1. Most people seek to repay the loans early because they have to anyway, and they can make some savings. It is a good argument in favour of prepayment. For instance, if you have a home loan of Rs 18 lakh for a period of 20 years at 10.5% interest rate then at the end of the tenure you pay Rs 43,13,040. Paying early will save your quite a bit of money.
2. Again higher rate of interest, at times, makes you pay more than the sum borrowed. So, it makes sense to repay the loan.
3. You have a windfall and get enough cash to repay the debt.
4. The loan has turned into an impossible feat and you want to get rid of it quickly to focus on other fixed costs that are more important.
If the scenario matches any of the above then read on tips to make the repayment easy for you.

Ways To Make Prepayment Easy

1. Go over the repayment scheme
Before undertaking this project check how well you are financially positioned. If the short and long-term investments have been addressed and you have a back-up for emergencies then take the plunge.
2. Change the EMI structure
Minor changes in the repayment scheme can be made easily by increasing the EMI by Rs 1,000 or Rs 2,000. It will slowly reduce the principal and the tenure in the long run.
3. Opt for partial payments
If you cannot make the full payment at one time partial payment is an alternative. Most major banks and financial institutions allow it. Whenever you get extra cash make some payment to the loan account instead of adding to your assets at home. Some banks may, however, limit the amount of partial payments, so don't forget to check with the bank.
4. Change your lifestyle initially
Repaying the loan is an important task and very satisfying once you have finished doing it. Living in your own house will make you more confident. So try to keep yourself motivated and add the extra bucks to your EMI.
5. Involve your family
The house is purchased by you but your entire family will be living together with you. Get them involved in the repayment process. Even if they cannot contribute financially let them understand the value of the measures taken to curtail unnecessary expenses. Ask them to cooperate and make family times more interesting at home rather than the shopping mall.

Paying off your home loan means utilising the extra money for further investment, a better lifestyle, or even quality travelling. But if you are paying high interest debts elsewhere take the time to repay them first and then focus your efforts on this. The house is not just an asset for you but also a means of getting more loans if needed later by mortgaging the property.