When Should You Prepay Home Loan Ahead Of Time?

Home loans are usually for large amount and long term. Home loan puts a huge financial burden on the customer and if he does not manage properly then his budget can also get spoiled. You can get many financial benefits from home loan prepayment and it also reduces the interest rate burden. The total cost of home loan can also be reduced by reducing interest rates.

The average duration of a home loan in India is around 10 years. Hence, customers choose home loan pre-payment option the most to get rid of the burden of home loan. Repaying the loan ahead of time always proves beneficial to the customer. But it is a loss for the bank or lender. This is the main reason why banks shy away from pre-payment. If the customer does not go to the branch itself, then the bank refuses to approve the foreclosure application. The most surprising thing is that most lenders would not have started the option of prepayment of housing loan. But it is important to have an important point that if a person is not available himself, then becoming a representative on his behalf, he can go to the branch with authority letter and start the process of home loan prepayment.

Most of the times, customers are in a dilemma that they can pay home loan well in advance or invest those money in other options. Such situations arise when the customer gets salary increment or bonus. At such times, the customer should carefully evaluate the prepayment penalty (if any) and then reach a decision. In every case, whether it is investment or prepayment, the customer should check all options. Without any doubt customers will always find the pre-payment option better than other methods. Home loan foreclosure or home loan prepayment gives average returns of around 8% to 9% in most cases.

In addition, when a customer focuses on the prepayment of a home loan, the entire interest rate outflow is automatically reduced. There are many home loan customers who remain skeptical about whether the EMI should be reduced or the loan term. But for a long time, it is prudent to reduce the duration of the home loan. That’s because when a person’s salary increases, he can also increase his EMI. With this, the home loan can be repaid ahead of time. Customers can also pay additional EMI if possible.

As per the general policy, the customer can pay an additional EMI throughout the year. If the customer wants to combine both options, ie increase in EMI amount and payment of an additional EMI, then home loan pre-payment can be planned accurately.

But there are many things that the customer should remember while closing the loan ahead of time. The customer has to submit important documents like ID proof. Take the receipt of the payment you have made. The receipt should state the principal balance after pre-payment, the balance home loan period and the new monthly instalment. The receipt and signature of the bank or lender should be on the receipt. If the EMI is deducted through the check of further dates, then the customer should issue new checks with the new EMI amount. At the same time, the customer should withdraw the old check for misuse. The customer should write his name, home loan account number, mobile number etc. on the back of the check.

There are many banks that do a source check of the funds being used in home loan prepayment. Therefore, the customer should keep the last 6 months bank statement with him, through which he is paying the home loan ahead of time. Apart from this, ensure that the prepayment information is updated in your CIBIL. Usually this information gets updated in 45-60 days. So after 60 days you can check your CIBIL report for this.

Tax rebate on home loan

If you are living in a house for which you have taken a home loan, then you get a tax rebate of up to 2 lakh rupees under section 24 on the interest paid in the home loan in the financial year. For home loan customers who fall in the high tax category, this provision reduces the tax to 60,000 in a year.

Customers buying home for the first time are given an additional rebate of 50 thousand rupees on the interest paid under section 80EE. On the principal amount of the home loan, there is another tax exemption under section 80C. In this, the home loan customer can get tax rebate up to Rs 1.5 lakh. Therefore, while repaying your home loan, do not forget these things. Calculate first, only then take a decision.

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