Are you tired of paying your home loan EMIs every month? Do you want to get rid of this financial burden as soon as possible? If yes, then you should consider prepaying your home loan. Prepayment of a home loan means paying off your home loan before the loan’s tenure ends. This article will discuss the reasons why prepaying your home loan is a smart move for you.
Significant Benefits of Prepaying Home Loan
One of the most significant benefits of prepaying your home loan is reducing the burden of paying EMIs every month. Home loan EMIs take up a large chunk of your monthly income, which can limit your financial flexibility. Prepayment calculator home loan can help you estimate how much money you can save by prepaying your loan amount.
Another benefit of prepaying your home loan is that it can help you save on interest payments. Home loan interest rates can be high, which means a significant portion of your EMI payments goes towards interest payments. Reducing the principal amount of your loan by prepaying it will reduce your interest payments, which can help you save money in the long run.
How Prepaying Home Loan Can Help Debt-Free Faster?
Furthermore, prepaying your home loan can help you become debt-free faster. Instead of paying EMI every month for 20 or 30 years, prepaying your loan can help you pay it off in a shorter span. This way, you can free up funds that you can use for other goals, like investing or saving for your child’s education.
If you have surplus funds, prepaying your home loan is an excellent investment option because it offers attractive returns. The interest rate on home loans is usually higher than the returns on savings accounts and fixed deposits. So, instead of investing in low yielding accounts, you can use the surplus funds to prepay your home loan.
Prepayment of home loan can also help you improve your credit score. By prepaying your home loan, you are showing that you’re responsible with your finances, which can lead to a higher credit score. A high credit score will make it easier for you to get future loans and at lower interest rates.
Types of Prepayments
Moreover, prepaying your home loan can help you avoid foreclosure. If you find yourself in a tough spot financially and are unable to pay your home loan EMIs, you may have to deal with foreclosure. In such a scenario, prepayment of your home loan can help you avoid the consequences of foreclosure, such as a damaged credit score and a loss of your home.
There are two types of prepayments that you can make – full prepayment and partial prepayment. Full prepayment means that you pay off the entire outstanding principal amount of your loan. Partial prepayment, on the other hand, means that you pay a part of the outstanding principal amount and reduce your EMI payments. You can use a prepayment calculator home loan to decide which option is best for you.
Before prepaying your home loan, it’s essential to consider the prepayment charges. Most banks and financial institutions charge a prepayment fee if you prepay your loan. The prepayment charges are usually a percentage of the outstanding principal amount, and they vary from lender to lender. Check with your lender to understand the prepayment charges before deciding to pay off your home loan.
Conclusion
In conclusion, prepaying your home loan is a smart move for you. It can help you reduce your burden of EMI payments, save on interest payments, become debt-free faster, offer attractive returns on surplus funds, improve your credit score, and avoid foreclosure. Use a prepayment calculator home loan to decide which type of prepayment works best for you. However, before prepaying your home loan, make sure to understand the prepayment charges to avoid any surprises. So, prepay your home loan, and you’ll be glad you did.