All You Need to Know About ‘Pre-Paying’ Home Loan.
Posted by anuragmishra on March 29th, 2017
Buying a home is one of the best decisions you can take, and if you have taken a home loan the EMI stands out every month till your tenure is over. Once the loan is taken it becomes your first priority to repay it back. It is a prudent decision to prepay your loan if you don’t require it. Home Loan Prepayment is financially beneficial for home loan borrowers.
The average home loan tenure is about 8-10 years in India, which means home loan prepayment is preferred by the borrowers. Home loan interest increases the overall cost of the property which means home loan eats into return from property.
Who can make a home loan prepayment?
Life is zero sum gain therefore it is beneficial for the borrower but a loss for the lender. Banks discourage borrowers to repay and it is mandatory in most banks for the borrower to be physically present for prepayment of the loan. If the borrower cannot be present then you can authorize your representative to prepay your loan on your behalf.
Should you invest or make a prepayment?
His is one of the biggest doubts in the mind of the borrower. If your investments get you better returns, more, then you can invest or opt out for prepayment. Home Loan prepayment is a better option in majority of cases as returns are in the range of 8-9%.
Should you reduce tenure or the EMI of the loan during prepayment?
Another dilemma in the mind of the borrower is whether he/she should reduce the EMI or tenure of the loan during prepayment? Go for the tenure as you have more financial benefits. Increase your EMI if there is an increase in your salary this will lower your interest.
While making your prepayment carry your identification documents like voter ID, PAN card, etc. Carry your cheque book to make your payments and also in case your EMIs are paid through cheque you need to give new cheques for the revised EMIs, don’t forget to collect your old cheques. Get your acknowledgement letter for the amount paid. Mention your name, home loan account number and your contact number behind all cheques.
Some banks need source of income of fund for the home loan prepayment, so carry six months bank statement of the account from which you are making your prepayment. Last but not the least; see that your bank updates your CIBIL database, with your prepayment amount paid and the principle outstanding thereafter. Prepayment is a good option if you have funds to pay, it is financially beneficial.
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