Looking to make a partial prepayment against your home loan? Use the Home Loan Prepayment Calculator to find out how much you will save on interest and how it affects your home loan EMI. Simply enter the loan amount, tenure, rate of interest, instalments paid, and prepayment amount to see the results.
What is Home Loan Prepayment?
When you repay your loan fully or partially ahead of the scheduled tenure, it’s called prepayment of home loan. Home loan prepayment works for you when you are looking to reduce your debt burden.
Home loan prepayment usually results in either reduction in your EMI or a reduction in your home loan tenure. Either way, you save a lot on the interest when you prepay your loan.
How does Home Loan Prepayment Calculator work?
The home loan prepayment calculator helps you determine how much you can save from prepayment. This calculator is very easy to use. All you need to do is enter a few details of the loan, including:
- Loan amount
- Tenure
- Rate of interest
- Instalments paid
- Prepayment amount
Once you enter these details, just click “Calculate” to view your interest savings from loan prepayment.
Eligiblilty for Home Loan Prepayment
Any individual can make full or partial prepayment against their outstanding loan, as long as the lender allows it. There are some lenders that do not allow prepayment as it may cause losses to them.
That’s why it’s important to check the prepayment clause before you sign your home loan agreement. If allowed, you should also check if your bank is imposing any penalty for loan prepayment.
Is Home Saver Loan a Better Option?
Making prepayment surely reduces your interest burden. But, at the same time, it also takes all your savings away which could be a problem during any financial emergency.
That’s where Home Saver Loans come in. Such loans like SBI MaxGain allow you to deposit your extra savings in a current account which is linked to your home loan account. Therefore, the bank will calculate your interest after deducting the balance in your current account (if any) from the outstanding principal amount. Also, you can easily withdraw your money from the current account whenever you want.
Home Loan Prepayment Charges
When it comes to home loan prepayment, the central bank has created some guidelines for banks and housing finance companies (HFCs). Take a look at these guidelines:
When Banks and HFCs are allowed to charge prepayment penalty:
- If you are a non-individual borrower, Banks and HFCs are allowed to charge prepayment penalty.
- Banks can charge prepayment penalty in case of fixed-rate loans.
- HFCs can charge prepayment penalty on fixed-rate loans, if the borrower is taking another loan from another bank or HFC to make the prepayment.
- If it’s a dual-rate loan, where the home loan interest rate is fixed initially, Banks can levy a prepayment charge if the prepayment is made under a fixed-rate loan.
When Banks and HFCs are NOT allowed to charge prepayment penalty:
- Banks cannot levy prepayment charges on floating-rate loans taken by individuals.
- HFCs cannot charge a prepayment penalty on fixed-rate loans taken by individuals, if the borrower is making repayment with own funds.
- If it’s a dual-rate loan, HFCs cannot charge a prepayment penalty if the borrower repays the loan when it is a floating-rate loan.
Things to Consider Before Making Home Loan Prepayment
1. Borrower’s age
If you are nearing your retirement, it’s best to make the home loan prepayment before you retire. Once you retire and have no source of income, you are more likely to default on your home loan payments.
2. Future cash requirements
You should also consider your future funds requirement before you make prepayment. Once you make home loan repayment, which is generally a huge amount, it will exhaust all your savings. Make sure you know your financial plans before you make a decision.
3. Tax savings
If you make your home loan repayment, you will not be able to avail income tax benefits. Currently, you can claim tax exemption of upto Rs 1.5 lakh per year on principal amount repayment under the Section 80C. You can also claim upto Rs 2 lakh exemption on interest paid under Section 24(b). In addition, in Union Budget 2021-22, the Finance Minister extended benefits of Section 80EEA which allows additional deduction of Rs 1.5 lakh on interest (over and above Rs 2 lakh allowed under 24b).
4. Savings from prepayment
You should consider home loan prepayment only if you stand to save enough on your interest outgo. If you are not saving any substantial amount, you could avoid home loan prepayment. For example: During the later stages of home loan, the interest component in your EMI is much lower as compared to initial years of the loan. Therefore, if you prepay the loan during the final years of the loan, you will not achieve much savings.
5. Investment opportunities
Compare the savings you will achieve from home loan prepayment with the returns on other investment opportunities you may have. If the returns are higher, then it’s better to invest your money instead of using it to prepay home loan.
