Prepaying Home Loan Is the Best Option
Aug 22, 2018 Home Loan
Now major banks have hiked their home loan rates, which has a become a concern for borrowers whether they can prepay the loan amount or at least do a part prepayment. Home loan is perhaps your largest loan for which you have been repaying the equated monthly instalment (EMI) for many years now.
With time you would have gotten you salary increment, and hence now you can afford more things along with your easy EMI. Now, maybe the EMI deduction on every 4th of the month is not a burden. Well, whenever you have that feeling why not prepay your home loan?
You may ask why should you do that when you have many more years to repay in small chunks. Prepay of the home loan would your best decision ever was taken. Prepayment of a part of your loan can not only reduce your monthly EMI burden but may also reduce the number of years you were under debt. The longer the loan duration, more is the interest outgo. You can also opt for ballooning repayment, where with an increase in salary EMI increases every year by 5 percent. This will lead to the reduction in the duration of loan repayment. So, the overall cost of the property is reduced manifold.
The feeling of being under debt is taxing for everyone.No doubt home loans help in tax deduction. However, this can never contribute to overcoming this feeling. If the property has been self occupied, the borrower may claim interest deduction of INR 2,000,00. Now, the catch in this is that the borrower will have to has let go of the tax benefit on the HRA allowance, which has never been accounted in the cost benefit analysis calculation by a planner.
Whenever you have a lump-some amount, prefer to make a prepayment over investment (such as Bank FD, Post Office Savings Scheme and PPF). If you calculate the maximum return that you may get from this investment would be less than the benefit that you would get from home loan prepayment.
Another question you may ask whether to reduce EMI or home loan tenure. Reducing the total mandate will reduce the overall interest outflow. So, it is always better to opt tenure reduction.
Borrowers sometimes struggle to make a prepayment as lenders impose physical presence to do so. Most of the banks try not to allow advance because it is a loss for them. Remember that if you are unable to be physically present then an authorisation letter to any representative will work on behalf of the borrower.
Above all these, your bank must update the CIBIL database about details of prepayment.
With time you would have gotten you salary increment, and hence now you can afford more things along with your easy EMI. Now, maybe the EMI deduction on every 4th of the month is not a burden. Well, whenever you have that feeling why not prepay your home loan?
You may ask why should you do that when you have many more years to repay in small chunks. Prepay of the home loan would your best decision ever was taken. Prepayment of a part of your loan can not only reduce your monthly EMI burden but may also reduce the number of years you were under debt. The longer the loan duration, more is the interest outgo. You can also opt for ballooning repayment, where with an increase in salary EMI increases every year by 5 percent. This will lead to the reduction in the duration of loan repayment. So, the overall cost of the property is reduced manifold.
The feeling of being under debt is taxing for everyone.No doubt home loans help in tax deduction. However, this can never contribute to overcoming this feeling. If the property has been self occupied, the borrower may claim interest deduction of INR 2,000,00. Now, the catch in this is that the borrower will have to has let go of the tax benefit on the HRA allowance, which has never been accounted in the cost benefit analysis calculation by a planner.
Whenever you have a lump-some amount, prefer to make a prepayment over investment (such as Bank FD, Post Office Savings Scheme and PPF). If you calculate the maximum return that you may get from this investment would be less than the benefit that you would get from home loan prepayment.
Another question you may ask whether to reduce EMI or home loan tenure. Reducing the total mandate will reduce the overall interest outflow. So, it is always better to opt tenure reduction.
Borrowers sometimes struggle to make a prepayment as lenders impose physical presence to do so. Most of the banks try not to allow advance because it is a loss for them. Remember that if you are unable to be physically present then an authorisation letter to any representative will work on behalf of the borrower.
Above all these, your bank must update the CIBIL database about details of prepayment.
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