A Home Loan is a big and long-term commitment. The repayment in the form of EMI causes a big dent in your monthly budget. Prepayment is one way to bring down your Home Loan liability. A lump sum prepayment brings down the outstanding balance, leading to a reduction in loan tenor as well as saving in EMI. A Home Loan prepayment calculator can be used to find out the extent of prepayment that can be made and the quantum savings.
Homes are getting more expensive and home buyers are applying for larger Home Loans. To make sure that the EMIs don’t hit them hard, they’re choosing a longer loan tenor. The effect is that the loan takes a real long time to repay and the interest charges keep mounting. Home Loan borrowers are choosing the prepayment of Home Loan option.
Extra earnings like cash bonus and monetary incentives can be utilised to pay off the outstanding Home Loan balance either in part or in full. If you’re making a part prepayment, making use of the Home Loan prepayment calculator will help you find out the remaining loan tenor and the subsequent EMIs payable.
Post Home Loan rates adopting the MCLR as base rate, Home Loan borrowers who want to rake in the benefits of MCLR are making part prepayments so that the current lower interest rates bring down a significant reduction in the remaining loan tenor as well as the EMI.
Using the Home Loan Prepayment Calculator
Most lender websites including Bajaj Finserv offer online Home Loan Prepayment Calculator. Factoring variables which include the loan amount, loan tenor, interest rate, and prepayment amount, you get calculations for the EMI saved and the revised loan tenor. Make sure your lender gives the the option to prepay your Home Loan without the levy of any prepayment charges.
Benefits of Using Home Loan Prepayment Calculators
- Estimate your Potential Savings
There is a substantial interest outflow on a Home Loan owing to the large principal amount and long tenor. You have some extra funds and want to prepay the loan, but find it difficult to quantify the savings. That is where a Home Loan prepayment calculator proves to be handy. All you need to specify is the amount of prepayment. Based on your loan tenor, loan amount, and interest rate, the calculator gives you a fair estimate of how much can be saved by choosing to prepay the Home Loan.
- Permutations and Combinations
You need a Home Loan to finance buying your home. But what is your affordability? What amount of loan can you avail so that the EMI doesn’t affect your monthly spendings? What are the savings potential when you decide to prepay? The answers to all these questions is just one; a Home Loan EMI calculator with prepayment option. Using a Home Loan EMI calculator, you can get a working sheet on EMIs for varying loan amounts and loan tenors, different prepayment amounts and the subsequent change in savings at differing levels of prepayment and also the reduction in loan tenor consequent to the prepayments.
- Right Time to Prepay
More than what amount of loan you decide to prepay, when to prepay is of utmost importance. The timing of the loan prepayment should be such that it should bring down the loan liability with a corresponding reduction in EMI and the loan tenor.
On a Home Loan EMI, a chunk of the instalment is adjusted against interest in the initial years, while towards the end of loan tenor, the principal is adjusted. So, making prepayments in the early part of the loan tenure effectively brings down the interest liability. With a Home Loan prepayment calculator, it gets easier to find out the ideal prepayment time.
Home Loan prepayment offers dual benefits – savings in EMI as well as reduced loan tenor. To rake in the dual benefits, start making your prepayments early. This will save a lot of the interest that you’ll need to pay.
Prepayment toward the end of loan term brings down loan tenor, but interest savings is almost negligible. If you’ve taken a Home Loan in the recent past say in the last 2/ 3 years, it’s the right time to put your extra earnings to best use by choosing to prepay your Home Loan. Very soon, you will be debt-free, with the joy of gaining ownership rights of your home.