Checklist for Home Loan Prepayment
Apr 10, 2017 Home Loan
There are certain formalities and extra charges involved in the process of prepayment of Home Loan which you need to be very careful about. However, prepayment has a big advantage as it helps reduce the burden of interest, thus reducing the overall cost of the property.
But you must remember the following points before you start the Prepayment:
Dos:
1)Choose your loan wisely: You need to put in a lot of research before you can which one to finalize., especially if prepayment is on your mind. First and foremost, check all the options being provided by various banks before making the final decision. You must choose a scheme that gives you an option to prepay without charging extra.
2)Know your budget: Choose a property according to your budget and try your best to get the right deal. Decide on a budget, choose a house accordingly and then apply for a loan.
3)Pay steady EMIs: When you decide to prepay, you are offered two options:
a)Reduce the EMIs
b)Reduce the tenure of the loan
In both these cases, you must keep the EMIs unchanged. Therefore, it is advisable to choose an EMI amount you’re comfortable with and try to keep it as steady as possible. Also calculate your EMI meticulously.
4)Prepay as early as you can: The sole purpose behind loan prepayment is to reduce the amount of interest paid and eventually lift some of the financial burdens off your shoulders. Most of these loans are designed in such a way that the earlier you make a prepayment, the more interest you get to save. So it is advisable to prepay in the early stages of the loan rather than doing it towards the end.
5)Carry all relevant documents along: When you are going to the loan office in order to prepay the loan, carry all the relevant documents- a government-issued photo ID proof (like a driver’s license or PAN card) and your cheque book along with you. Keep in mind that you will also need to pay simple interest for the month towards which the principal is being prepaid.
Don’ts
1)Calculate the benefits beforehand: Before you repay your Home Loan you should calculate the returns that can be made from the same amount if invested elsewhere and compare it with the interest amount of the Home Loan.
2)Don’t overlook the tax benefits of the loan: Before you start prepaying your home loan, double check whether your Home Loan is offering great tax benefits with attractive rebates on the principal and interest components.
3)Don’t prepay the entire loan amount: If you find that the amount for which interest is being paid is less than what the funds would fetch when invested in other financial instruments with assured returns, you should not prepay the full loan amount. Instead, you can look at a partial prepayment.
4)Don’t forget to get an acknowledgment for your payment: Also remember to get the acknowledgment papers signed and stamped by an authorised representative of the bank.
5)Don’t forget to collect unused cheques from the bank: Although this is a precautionary step, still collecting them to prevent misuse
But you must remember the following points before you start the Prepayment:
Dos:
1)Choose your loan wisely: You need to put in a lot of research before you can which one to finalize., especially if prepayment is on your mind. First and foremost, check all the options being provided by various banks before making the final decision. You must choose a scheme that gives you an option to prepay without charging extra.
2)Know your budget: Choose a property according to your budget and try your best to get the right deal. Decide on a budget, choose a house accordingly and then apply for a loan.
3)Pay steady EMIs: When you decide to prepay, you are offered two options:
a)Reduce the EMIs
b)Reduce the tenure of the loan
In both these cases, you must keep the EMIs unchanged. Therefore, it is advisable to choose an EMI amount you’re comfortable with and try to keep it as steady as possible. Also calculate your EMI meticulously.
4)Prepay as early as you can: The sole purpose behind loan prepayment is to reduce the amount of interest paid and eventually lift some of the financial burdens off your shoulders. Most of these loans are designed in such a way that the earlier you make a prepayment, the more interest you get to save. So it is advisable to prepay in the early stages of the loan rather than doing it towards the end.
5)Carry all relevant documents along: When you are going to the loan office in order to prepay the loan, carry all the relevant documents- a government-issued photo ID proof (like a driver’s license or PAN card) and your cheque book along with you. Keep in mind that you will also need to pay simple interest for the month towards which the principal is being prepaid.
Don’ts
1)Calculate the benefits beforehand: Before you repay your Home Loan you should calculate the returns that can be made from the same amount if invested elsewhere and compare it with the interest amount of the Home Loan.
2)Don’t overlook the tax benefits of the loan: Before you start prepaying your home loan, double check whether your Home Loan is offering great tax benefits with attractive rebates on the principal and interest components.
3)Don’t prepay the entire loan amount: If you find that the amount for which interest is being paid is less than what the funds would fetch when invested in other financial instruments with assured returns, you should not prepay the full loan amount. Instead, you can look at a partial prepayment.
4)Don’t forget to get an acknowledgment for your payment: Also remember to get the acknowledgment papers signed and stamped by an authorised representative of the bank.
5)Don’t forget to collect unused cheques from the bank: Although this is a precautionary step, still collecting them to prevent misuse
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