According to a recent survey, almost 20% of respondents had a recurring query, “How do I pay off loans faster”.
It becomes even more relevant when individuals opt for long-term credit like a home loan. However, the easiest and most common answer can be home loan prepayment.
With this facility, borrowers can reduce their repayment burden considerably. In this regard, a home loan prepayment calculator can be an effective tool.
What is a home loan prepayment calculator?
Many financial institutions allow the prepayment or advance payment facility on home loans for borrowers. This refers to an early installment payment before its due date.
It is usually a lump sum equivalent to at least three times the regular EMI. By paying a part of debt before time, an individual can successfully reduce his home loan tenor and EMI.
Furthermore, one can choose to make partial prepayments or fully pay the outstanding debt. A home loan prepayment calculator is an effective and online free tool that individuals can use to check their reduction in monthly installments after prepayment.
This calculator also displays how much interest one can save by paying a substantial amount.
How to use the home loan prepayment calculator?
This online tool is available on the website of financial institutions.
To determine their savings, users need to enter the interest rate, tenor, and principal amount.
Below mentioned are the steps are given to use the prepayment calculator for home loans:
Step 1: Visit the official website
Step 2: Go to the ‘Home Loan’ section and open ‘Home Loan Prepayment Calculator
Step 3: Enter loan amount, tenor, and the applicable rate of interest
Step 4: Click on the button to calculate
Once you enter the details, you will see the revised EMI payable and interest savings.
Factors to consider before home loan prepayment
Although a home loan prepayment calculator streamlines the process, individuals must consider certain factors before opting for this facility:
The right time for prepayment
A prepayment of a home loan is fruitful if done at the right time. For instance, if you avail of a home loan with a floating interest rate, there is a possibility that the interest rate may increase due to the RBI revising the repo rate or due to a lower credit score.
Hence, it is better to make as much prepayment as possible when the interest rate on a home loan is still low or when you have a higher CIBIL score.
Individuals must consider the charges associated with this facility. In addition, they must ensure that the prepayment does not increase one’s savings.
However, selected financial institutions offer this facility at nominal charges. Furthermore, selected HFCs also provide pre-approved offers that simplify loan processing.
Besides home loans, these are also available on loans against property. For that, you should enter your name, and number to check the pre-approved offer online.
Individuals must check their financial obligations, such as retirement goals, daily expenses, emergency funds, etc., before paying a considerable amount as prepayment.
Amount to prepay
Borrowers should determine the amount they wish to pay in prepayment. Most financial institutions require their borrowers to pay more than their monthly installments. Hence, individuals must be aware of the lender’s specific conditions beforehand.
How to apply for a home loan?
Now that borrowers are aware of prepayment, they must know how to apply for a home loan.
Below are the mentioned steps to apply for a home loan:
Step 1: Visit the official website of the lender
Step 2: Fill up essential details such as name, contact details, employment details, and others
Step 3: Borrowers must provide certain documents such as KYC, financial documents, property documents
Step 4: After essential documents are provided, a lender will process these documents for authenticity
Step 5: After verification, lenders will issue a sanction letter that will contain the loan amount, repayment tenor, rate of interest, and interest type
Step 6: Borrowers must pay an application fee, although lenders may ask to pay this fee earlier
Step 7: Lastly, the lending institution will make a final inspection of the property and will run a legal check before disbursing the loan amount
It is vital to check all the prerequisites beforehand, as this might help candidates avail of a low-interest home loan.
Thus, borrowers can prepay part of their debt obligations whenever they have excessive funds. To decide how much funds to pay, one should check his/her current expenses and use the home loan prepayment calculator.