Prepaying Home Loan?, Think Again !!

Most of us are averse to being debt-ridden. A loan is a debt that you would typically have to repay at the earliest or preferably prepay. However, a home loan must not be considered the same as a personal loan, car loan, etc. A home loan prepayment offers various benefits that may make prepayment unbeneficial.

Prepayment is a facility with which you can repay your housing loan (in full or parts) before the due date of your loan. Usually, customers prepay when they have surplus funds. Prepayment reduces the outstanding principal owed, and in turn, reduces your EMIs or the remaining loan tenure. But there is a way to out to be sure about the prepayment of your home loan, and that is-

Home loan prepayment calculator 

A Home Loan Prepayment Calculator can help you to know the impact of partial payment. Making a prepayment or part-prepayment of your home loan may result in great savings and a reduction in your existing housing loan EMI and tenure. But RBI allows calculating prepayment charges only on the outstanding loan amount. Basically, the longer time period you have your loan going, the smaller will be the penalty, and the lesser will be your outstanding loan.

When you make a home loan repayment, you get two options:

• First, to reduce the EMI amount and keep the tenure same

• Second, to reduce the tenure and keep the EMI same

How can you use the Home Loan Prepayment Calculator?

This is as simple as filling a form. All you need to do is enter your loan details, the loan amount you are willing to prepay and the below- mentioned values to calculate your savings:

• Loan Amount

• Tenure (In months)

• Interest rate

• The amount of part prepayment you want to pay

After doing so, there are possibilities of getting two results; it will either be EMI SAVED or TENURE SAVED.

Home Loan Prepayment- What is it? 

Home Loan Pre Payment simply means early loan repayment in case if you have surplus cash. As a borrower, you may close your loan before the due date to reduce your borrowings and monthly EMIs. You may repay the loan from your own savings or by transferring your loan to another bank to get lower interest rates.

A prepayment penalty is a fee that you pay to the bank if you prepay a loan before the end of its term. It is compulsory to be paid.

This sounds a little weird that we need to pay extra charges because we want to prepay our loan before the allotted time. But this done due to the set time periods on specific loans by the bank. For example, a loan has been allotted to be reverted in 20 years. It includes the interest rate accordingly and gives the bank profit accordingly. But if the borrower prepays in 2 years, the bank will face a loss of 18 years of the interest rate. Hence they charge prepayment charges to compensate for their loss.

PREPAYMENT RULES

In 2014, RBI issued the following prepayment rules for banks through its circular "Levy of foreclosure charges/prepayment penalty on Floating Rate Loans." Even NHB has similar rules to be followed.

Now there are possibilities of 2 cases from here. 

1. The ball is in your court - the bank cannot charge prepayment charges.

2. The ball is in the bank's court - the bank can charge prepayment charges.

So, before you think about prepaying the loan, you should go through the given points and know if you are falling in any of the following categories and make sure your bank isn't fooling you. 

The cases where banks cannot demand prepayment are:

• Floating Rate Home Loan is taken by individuals

• Fixed-Rate Home Loan from HFCs provided the prepayment is from own sources

• Dual Rate Home Loan from Banks or HFCs

The cases where the bank can ask for prepayment charges are:

• Home Loan is taken by non-individuals

• Fixed-Rate Home Loans taken from banks

• Fixed-Rate Home Loans taken from HFCs

• Dual Rate Home Loans by individuals