Part-prepayments on a home loan: a good idea


A house loan is frequently the largest financial commitment we will make in our lives. Part prepayments in addition to regular EMIs should be made whenever possible during the loan term to reduce the overall interest obligation and go debt-free sooner. This is made even better by the fact that lenders do not impose prepayment penalties on variable-rate home loans.

Prepay a portion of your loan

Part-paying a mortgage is one of the greatest ways to use any extra cash or windfalls, such as bonuses, inheritances, or financial gifts, to good use. As a result, the availability of such money may be a factor to consider when part-paying your loan.

Because floating rate home loans may experience a hike due to interest rate revisions or a significant drop in the borrower’s credit score at any point during the loan term, it may be a good idea to make as many part-prepayments as possible while the applicable home loan interest rates are low and your credit score is high.

Prepayment charges

Prepayment penalties are not charged by banks or housing finance companies (HFCs) on variable-rate house loans. A modest fee for simple interest will be charged, which can be reduced by completing the prepayment early in the month. In fixed-rate home loans, however, lenders may charge a prepayment penalty of about 2% of the amount prepaid.

What is the prepayment amount?

Part-prepayment of house loans is also restricted by some lenders if the prepayment amount is less than a certain amount. To make a portion prepayment, most banks need a sum more than the current EMI. To make a portion prepayment, certain banks and financial institutions need at least three times the EMI amount.

            So, before you decide to make a partial payback on a house loan, be sure you understand all of the terms and circumstances.

Don’t overspend

While prepaying a house loan to become debt-free is great, it should not come at the expense of other financial goals such as an emergency fund, children’s school fund, retirement plans, and so on. So, keep in mind that your attempts to get the cash needed for house loan part-prepayments should not leave you exposed to life’s whims or cause you to miss out on other vital financial commitments.

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