Is it a Good Idea to Use the Annual Bonus for Prepayment of a Home Loan?

Dev Singhraha

Relocation Expert

Home buyers know how monthly EMIs strain the financial budget of the family. A large sum of money goes into paying the monthly EMI, and there’s not enough left to run the household and have considerable savings. If the loan borrower is the only earning member of the family, then the situation becomes even tighter. In such a scenario, the annual bonus comes as a relief to the home loan borrowers.

While some may use this bonus money to invest in the areas that they have meant to, some prefer to prepay their home loan. Prepayment of home loan can either reduce the burden of monthly EMI to bring down the tenure of the home loan. Either way, it is a win-win situation for the home loan borrower. Getting rid of the financial burden is something a home borrower wants.

We discuss if it is an excellent idea to prepay your home loan:

1.    Do you have enough savings?
When you invest in a property, the right amount of your savings goes into buying the house. Paying the monthly EMI is also not easy. Even though banks and financial institutes insist that one should not use more than 40% of their monthly salary to pay the EMI, it does not always happen. Home buyers sometimes end up using 50 – 60% of their monthly salary to pay the EMI. This leaves them very little in hand to manage the monthly expenses and savings. It is a good idea to use the bonus money to build savings again.

2.    Will prepayment help you in the long run?
It is an important question that you must think about before using your bonus money to prepay the home loan. The main goal behind prepayment is to reduce your monthly EMI, but a small amount of prepayment will not help. It is better to save for a few years and then pay the money altogether as prepayment. You will see how drastically it brings down your home loan burden. You can also use the bonus money to invest in other investment areas like mutual funds and use the maturity value to prepay the home loan.

3.    Are you rushing it?
It is understandable why one would want to prepay their home loan. The sooner one gets rid of the financial burden, the better. But before you make the decision look around and make sure that there isn’t any immediate need that you are overlooking. Paying a home loan means spending money wisely. It is alright to let take a break from it and go a little easy on your expenditure.

Looking for property portal?

Find a property Post property

Time taken by Banks to Process the Home Loan

Times have changed a lot in the last five years. With the increasing competition in the financial sectors, the banks are under pressure not to lose any of their clients. Five years back applying for a home loan and getting it approved would have take...

Apr 24, 2019
Is it Possible to Pull Out from A Joint Home Loan?

Buying a house with a joint loan not only extends your home loan limit but also helps you get a loan quickly. Banks and financial institutions love the idea of a joint home loan and are always willing to give out one. But sometimes your financial ...

Mar 28, 2019
Tips for Senior Citizens to Avail Home Loan

The entire home loan process loan is a tedious task. Young people think twice before applying for a home loan due to its lengthy paper work and process. And hence availing home loan is a scary task for the senior citizens. While giving loan banks ...

Jun 12, 2018
Make the Most of Lower Home Loan Rates

The homebuyers across the country have been joyous with the home loan interest rates being cut down. The banking regulator of the country, Reserve Bank of India has reduced their repo rates and has urged the banks to pass the benefits to the home loa...

Jul 23, 2019