The repayment of your Home Loan needs a lot of patience and financial discipline. The Equated Monthly Installments (EMIs) be a large part of your limited income. Hence it is necessary that you repay all your debts at the earliest. Another way to repay all your debt is to go for principal pre-payments.
Following the demonetization drive, the Home Loan rates of interest are at the lowest which has given a chance to the borrowers to get a Home Loan at a low cost. It has also offered its existing customers a chance to pre-pay their outstanding loan and get rid of all the debt.
Pre-payment of your outstanding amount reduces the loan tenor, which will help you save money in the long run. The pre-payment of your outstanding loan amount creates a better impact when the rate of interest is low.
- How Low-interest Rate Affects Pre-payment:
Availing Home Loan is the biggest financial commitment taken by an individual. The EMIs are a monthly outflow which can be calculated as the highest expense of your income. Often, due to the payment of a large rate of interest on loans, the property valuations look less lucrative. Hence it is advised that you pay off or pre-pay your loans at the earliest.
Pre-payment of your Home Loan will help you in saving money for the long run. You can accumulate all your extra funds and use that to pre-pay your Home Loan when the interest rate is low, instead of making small payments. For calculations, there are several online Home Loan Part Pre-payment Calculators available in the market so you can use to get an approximate idea about the amount.
- Using Savings to Pay Off the Loan, Wholly or Partially:
Pre-payment of your Home Loan will help you in saving money, in the long run. Who wouldn’t want to save some money and at the same time reduce the amount of outstanding loan debt that they owe to the bank?
If you want to prepay your Home Loan at a time when the interest rates are low, you can make use of your savings. But you need to make sure that you will not need this money or that you have an emergency fund if needed. While pre-payment of your Home Loan is a really good idea, having no money in your pockets during an emergency is not a good thing.
In such a case when you need funds immediately, you might have to end up taking a personal loan, which charges a higher rate of interest that a Home Loan. Thus you end up losing more money in interest payments.
- Using your Bonus for Pre-payment:
The bonus that you get once a year can be used to pre-pay your outstanding Home Loan debt. By using this option, you will not have to take anything out of your savings accounts and the surplus money you get can be put to use in a useful manner.
It is always a good idea to prepay your Home Loan but at the same time, you also need to see that you prepay the Home Loan when the rate of interest is low.