To fulfill the deliberate requirement of owning a house in the sky-scraping real estate rate the foremost thing you can do is avail of a house loan. You get a lump sum amount of the property value as a loan and the rest you pay in terms of down payment. Although, you will have to repay the amount for long tenures. But you can reduce the home loan EMIs by making part prepayment of home loan.
To compute the exact prepayment amount, pin your hopes on Urban Money’s home loan prepayment calculator. This cutting-edge, artificial intelligence-based high-tech tool allows you to get pertinent prepayment values in a fraction of seconds. Utilize the Home Loan Prepayment Calculator to determine how much interest you'll save and how it will affect your EMI.
What is the Home Loan Prepayment Calculator?
A housing loan part payment calculator is a stalwart online tool that is precisely designed to help borrowers. Borrowers can themselves determine the felicitousness of the part prepayment option. You get the option to compute exact values by entering basic details such as loan amount, repayment tenure, together with the part prepayment amount you want to pay. The part prepayment calculator allows you to depict the savings you are about to get.
With a payment calculator, you get to know four essential aspects, including the revised monthly installment, the total percentage saved on monthly EMIs, the repayment tenure reduction, the due amount, and total savings. Utilize the prepayment calculator to know whether you should move forward with the prepayment of the loan or not.
Although the manual calculations of such changes can be daunting, there are chances of errors. Rather than wasting your valuable time calculating these values, use our online calculator and make the appropriate computations.
How does the Home Loan Prepayment Calculator Work?
With Urban Money’s handy home loan prepayment calculator, you can compute values by following a minimal process that won't even take a minute of your precious time. Here’s how the calculator works:
- Visit the top section of the home loan prepayment calculator.
- You will see various text fields marked as Loan Amount, Interest Rate, Tenure, Prepayment Amount, and Number of Paid EMIs.
- Enter appropriate values in the text field and press "Enter."
- As a result, you will get new monthly EMIs as the principal loan amount will be reduced.
What are the Benefits of the Home Loan Part Payment Calculator?
Part-payment allows home loan borrowers to diminish the outstanding amount up to a significant level. This reduction in principal is reflected directly in decreased interest liabilities along with subsequent EMI reduction. A part-payment can be helpful in limiting the liabilities, especially when chosen at the right time. The part prepayment calculator enables you to depict the profitability of the upfront payment you will make against the house loan liability.
At the same time, the part payment contributes to the overall improvement of the applicant’s credit score after the final settlement of the home loan. When you select the prepayment option, you take one more step towards easier principal amount repayment. Additionally, the charged interest rate remains in check. The best part about computing values is that you already know the exact savings you are going to unlock.
As a home loan borrower, always try to make multiple partial payments across the loan tenure to avail of maximum benefits. Banks and lenders usually allow the borrower to make part prepayments equal to the amount payable through three EMIs. In simple words, if you are paying an EMI of INR 20,000, then you are eligible to make a part payment of INR 60,000.
Who is an Eligible Candidate to Make a Home Loan Prepayment?
Any home loan borrower is permitted to make full and partial prepayments towards the outstanding home loan amount. Well, there might be some restrictions that thoroughly depend upon your lender. Many lenders do not accept partial prepayments, while others do.
Thus, it is highly recommended to go through the prepayment clause mentioned within the agreement before signing the home loan agreement. If your agreement permits you to do the same, then you are eligible to make part prepayments. Don’t forget to check if the lender has imposed any charges for prepayments. It is better to know about the penalty in advance before making partial payments.
What are the Applicable Home Loan Prepayment Charges?
When you count on home loan prepayment, you might be liable to pay notable home loan prepayment charges. These charges are imposed based on RBI guidelines or guidelines issued by central banks. All banks and housing finance companies are bound to follow these guidelines. If you are thinking of making partial prepayments, here are certain things you must be familiar with:
When Banks & HFCs are Permitted to Charge Prepayment Penalties
- If a non-individual borrower applies for partial prepayments, then he/she will be liable to pay a prepayment penalty.
- Banks have the right to charge a penalty if a borrower with a fixed rate home loan makes a partial prepayment.
- HFCs are restricted from imposing penalties on borrowers with fixed rates only if the borrower applies for another loan to put forward the prepayment.
- If the individual who accessed a dual-rate loan decides to make a prepayment during the fixed rate tenure, then he will be liable to pay a penalty.
Note: A dual-rate loan is one in which the rate was initially fixed but after a certain time period was shifted to floating interest rates.
Cases in Which HFCs are not Permitted to Charge Prepayment Penalties
- Banks are restricted from levying partial prepayment charges in the event of floating-rate loans.
- HFCs are not allowed to impose a penalty if the borrower is prepaying the amount from their own funds.
- In the event of a dual-rate loan, financial institutions are restricted from charging a penalty if the home loan is availed at floating rates.
Factors to Consider Before Making Part Prepayments
It is not advisable to make part prepayments out of the blue. You need to go through a systematic procedure if you want to avail the maximum possible benefits. Certain factors account for the right time to make a prepayment.
1. The Age of the Borrower
If the applicant is near retirement age, then count on the prepayment prior to retirement. When you reach retirement, your income sources are restricted, and your expenditure might increase. There are chances that you won’t be able to make a part prepayment after getting retired.
2. Future Expenditure
When you finalise the part prepayment, don’t skip contemplating the upcoming expenses. The amount you will prepay is a huge amount and can literally exhaust all accumulated amounts. Thus, before making such payments, look into your finances and plan accordingly.
3. Tax Savings
When an applicant makes a home part prepayment, he is rolled off the list of possible tax benefits. whereas during the repayment period, you can claim a maximum tax exemption of INR 1.5 lakh on the principal component under Section 80C. Furthermore, under Section 24 (b), you can claim a maximum tax exemption of INR 2 lakh on the interest component. In the case of a joint loan, both the owners can avail the benefits of the tax exemption individually.
4. Total Savings Achieved Through Prepayment
You might have to pay a liable fee to avail yourself of the benefits of prepayment. Before you consider part prepayment, look into the applicable charges, if any, along with the overall amount you will save by making prepayment of a home loan. If you don’t make huge savings through loan prepayment, then drop the idea of prepayment. Additionally, you should consider making a prepayment in the later stages of repayment tenure as the principal component is higher. In the initial tenure, the principal component is comparatively low.
5. Investment opportunities
When you have access to a reliable amount of funds, don’t just look into prepayments. If you get other opportunities to invest the same amount and can avail more benefits through the investment, then you should consider other opportunities over prepayment of your home loan.
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Frequently Asked Questions (FAQs)
Is prepayment of a home loan permissible?
A home loan has numerous advantages, such as tax benefits, which may make prepayment an unfavourable option for you. Banks and finance providers permit borrowers to make prepayments and repay home loans before the completion of the loan tenure. Moreover, you might have to pay applicable prepayment charges (if any).
How can you calculate prepayment charges?
To ease up the prepayment calculation process, you can count on the prepayment calculator. On the other hand, the prepayment charges are calculated by computing the difference between the original rate of interest and the current rate of interest. For instance, let’s say your original home loan interest rate was set at 7.5%, and at present, the applicable rate of interest is 5.5%. The difference between the two, which is 2%, is multiplied by the principal amount.
200000 x 0.02 => 4000 This will be the applicable prepayment charge levied by the lender.
What is the impact of prepayment on home loan EMI?
When your principal amount is less, you become liable to pay lower interest rates and reduced EMIS. By making home loan prepayment, you unlock the opportunity to part prepay the loan amount before the home loan’s tenure completion. It results in the reduction of interest components from monthly EMIs. Thus, with prepayment, the overall amount of home loan EMI is reduced.
What do you mean by prepayment charges for a home loan?
Home loan prepayment is the process of repaying a home loan partially before the due date. To carry forward the prepayment procedure, you might have to pay notable charges levied by the lender. That is why it is recommended to get familiar with the applicable charges while applying for a housing loan.
Do part-payments lower home loan EMIs?
Not directly, but it eventually reduces the home loan tenure. The prepayment reduces the interest amount, which indirectly has an impact on the EMI.
How to calculate the principal repayment on a housing loan?
The EMI of a home loan comprises two vital components that are principal components together with interest components. In simple words, the EMI is equal to the principal amount in addition to the interest paid on the housing loan. The monthly installment remains fixed throughout the loan tenure. To calculate the repayment principal, the paid EMIs are deducted from the principal amount along with the levied interest rate.
What is the advantage of prepaying a home loan?
The key benefit of prepaying a home loan before the due date is the reduction of interest outflow. When you rely on prepayments, you save a lot in terms of interest. With the reduction of the principal amount, the average interest rate and the initially determined payable amount decrease.
When is the right time to make prepayments?
During the initial stage of a home loan, the interest component is higher. Thus, you should count on prepayments during the initial years of a home loan. If you decide to make prepayments at a later stage, you don’t save much and end up paying more in terms of prepayment charges.
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