Like many others, you may also aspire to become debt-free soon. Being debt-ridden, even if it is small, can be overwhelming. If your feeling resonates with this, prepayment is a powerful tool for you. Many borrowers use prepayment to reduce their debt burden and enjoy a debt-free life. Prepayment is a good alternative for those who can repay you’re their loan earlier than scheduled. Before you make up your mind, know home loan prepayment rules. Knowing what is home loan prepayment and its advantages will help you make an informed choice.
What is Home Loan Prepayment?
Home Loan prepayment is sometimes also called foreclosure. It is a financial facility that allows you to pay the loan amount in part or full. This reduces or finishes the outstanding principal loan amount. We suggest before closing your loan, you should check the lender’s terms and conditions.
Top Benefits of Home Loan Prepayment
Here, we outline the best advantages of home loan prepayment.
1. Save Interest
Home Loan interest rates are very high. Prepayment of home loans means you don’t have to pay the interest till the end of the loan term. This will allow you to save on home loan interest as the loan tenure is shortened or eliminated. The more you prepay, the shorter be loan tenure and the lesser the interest. If you aim to maximize interest savings and can afford to prepay, you should consider this option.
You can consider using the prepayment of home loan calculator. The same is available on many financial websites for free. Use the calculator to calculate the interest saving when you shorten the tenure. The loan tenure automatically gets adjusted if you make the prepayment.
2. Enjoy Peace of Mind
When you become debt-free, it will offer you a big sigh of relief. You get time to focus on other financial commitments. You can use the saved interest money to make other investments or fulfill other personal goals.
3. Maintain Lower Credit Utilization and Better Credit Score
A loan keeps the credit utilization ratio high. When you prepay the home loan, it will lower your credit utilisation ratio. A low CUR is good for the credit report and score. Also, timely repayment is imperative for a great credit score. With loan repayment, you can get an opportunity to raise your credit score.
4. Avoid the Risk of Default
A home loan has a significant impact on the credit score. When you forget to pay EMI, it can damage your credit score. The risk remains until the loan is completely repaid. When you repay the loan, you can save yourself from the risk of payment defaults.
5. Improve Creditworthiness and Eligibility
Paying off a certain loan improves your creditworthiness and makes you more eligible for further loans like car loans, personal loans, business loans, etc.
Wrapping Up
Home loan prepayment offers many advantages. But weighing the pros and cons before you go for it is essential. Know the penalty charges and evaluate your budget to make the best of this option. Ensure to assess your financial needs and goals, before finalizing the home loan prepayment option.
To know more about credit building and improvement, connect with Due Factory.
Disclaimer: This article provides a general guide to the subject matter. You should take a professional advice about your specific case.
FAQs
1. What are the benefits of home loan prepayment?
Ans. Home loan prepayment has many benefits, including interest saving, lesser loan tenure, better cash flow, higher credit score, financial flexibility, etc.
2. Are there any disadvantages of home loan pre-payment?
Ans. Home loans can help you save on taxes. When you prepay your home loan, you may have to give up tax benefits. Also, when considering prepayment, include the costs like fines, prepayment charges, etc., when making decisions. Paying a huge sum can also impact your liquidity.
3. What are the prepayment penalty charges?
Ans. The prepayment penalty charges depend on the lender. To know the exact penalty, visit the website of the lender.
4. How does the prepayment lower EMIs?
Ans. When you pay a part of the loan amount, your principal amount gets less. This reduces the EMI.
5. Should I prepay the home loan?
Ans. Whether to prepay or not the home loan depends on factors like your affordability, interest rate, penalty charges, loan tenure, etc.