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Benefits of Home Loan Prepayment

Here are the key benefits of Home Loan prepayment:

1. Reduction of Loan Tenure

By prepaying your Home Loan, you can reduce the remaining tenure of your loan, helping you become debt-free sooner.

Lower Interest Outgo

Prepaying your loan reduces the principal amount, resulting in significant savings on interest payments over the entire loan tenure.

3. Improved Credit Score

Early repayment or partial closure reflects financial stability, thereby improving your creditworthiness and increasing your credit score.

4. Enhanced Financial Flexibility

By lowering your EMI or closing the loan completely, you free up additional cash every month, which can be used for other goals.

5. Relief from Long-Term Debt

Eliminating debt obligations sooner provides psychological relief and strengthens financial independence.

6. No Charges for Floating Rate

According to RBI guidelines, lenders cannot levy Home Loan prepayment charges on loans with a floating interest rate for individuals."

How Home Loan Prepayment Works?

Understanding how Home Loan prepayment works is crucial before making any decisions.

1. Partial Prepayment

Paying an additional amount over and above your EMI is deducted directly from the outstanding principal. Depending on your lender's policies, this reduces the loan tenure, interest payable or both.

2.Full Prepayment (Foreclosure)

This entails fully clearing the entire outstanding loan balance before the end of the loan tenure. While there may be foreclosure charges on some loans (like fixed-interest loans), the benefit of eliminating the interest outweighs these costs.

3. Impact on Loan Tenure and EMI

-With partial prepayment, you have the option to either reduce your monthly EMI or shorten the loan tenure.

-Choosing to lower the tenure results in higher savings on interest while reducing EMIs improves monthly savings.

Prepayments are usually simple when done online. Customers can request prepayment through their lender’s app or portal, check their eligibility and proceed to make the payment directly using net banking or other options.

Let’s take an example using a Home Loan Prepayment Calculator.
Loan ParticularsLoan Details
Loan Amount₹ 20,00,000
Interest Rate9%
Tenure20 Years
EMI₹ 17,995
Total Interest Amount (in 20 years)₹ 23,18,687
Total Amount Payable (in 20 years)₹ 43,18,687

Now, let's assume prepayment is done in the 11th year.

Prepayment ParticularsDetails
Opening Balance (Principal)₹ 14,20,518
Prepayment Amount₹ 14,20,518
Interest Amount Saved₹ 7,38,825

How Prepayment Charges Are Calculated?

Home Loan prepayment charges vary based on the type of interest rate (fixed or floating) and the lender’s policies.

1. Fixed Interest Loans

Lenders often impose prepayment penalties on fixed-rate loans as a percentage of the prepaid amount.

2. Floating Interest Loans

As per RBI guidelines, no prepayment charges are applicable on floating-rate loans availed by individuals.

3. Other Fees

Depending on the lender's policies, additional fees such as GST or administrative charges may also apply.

FAQs & Support

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Does Home Loan prepayment reduce EMI?

Yes, borrowers can reduce their EMIs after a partial prepayment while keeping the loan tenure unchanged. This offers monthly savings and better cash flow.

How much can I prepay on my Home Loan?

Most lenders do not impose a maximum cap on prepayment amounts, especially for floating-rate loans. However, you should verify with L&T Finance to learn about specifi... Read More

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