After you take a house loan, you can either clear it only in EMIs or make prepayments and pay the rest in EMIs. Home loan prepayment refers to repaying the loan early in part or full.
This repayment option has various benefits. You can become debt-free faster and fulfil your dream of becoming a homeowner or start earning rent on the purchased property sooner. That being said, here are all the pros of prepaying a house loan.
Improve Your Credit Score
The earlier you repay a loan, the more quickly you can boost your credit score. Sometimes, you may face difficulty paying the EMIs over a long time and thereby, incur debts. By making a home loan part payment or full prepayment, you can reduce or avoid the chances of future debts. Thus, you can prevent your credit score from falling.
Besides, the prepayment may appear on your credit report. This will prove your creditworthiness to future lenders and help you get loans at better interest rates.
Reduce Your Loan’s Outstanding Balance
When you make a home loan prepayment, the principal outstanding amount of the loan naturally reduces. This lowers the burden of repayment and gives peace of mind. Therefore, check with your bank whether it allows you to prepay a loan in part or full.
Lower the EMI Burden
You can request your lending bank to lower the amount of the remaining EMIs while keeping the loan tenure the same after you make a home loan part payment. As a result, the rest of the EMIs become more affordable and you can clear them more easily than before.
Reduce the Loan Tenure
When you prepay your loan, you can even request the bank to reduce the repayment tenure of the loan. Then the EMIs remain the same. However, you can pay them faster over the shortened tenure and thus, become debt-free early.
To check the modifications in the loan EMIs or tenure, consider using an online part payment calculator on the bank’s website.
Lower the Interest Burden
You need to pay interest as long as you pay the instalments. So, if you reduce the tenure, you’d pay interest for a shorter period. This lightens the interest burden. Nevertheless, there isn’t much cause of worry if you’ve got a home loan from a good bank offering industry-best interest rates.
Skip Prepayment Charges
If you get the loan amount floating interest rates, you need not bear any home loan prepayment charges as per the directive of the RBI. This makes the prepayment affordable and convenient.
Now you can see the various advantages of making a home loan prepayment in full or part payments. Boost your savings and make use of any salary hike before applying for a house loan if you wish to make a large prepayment. Make sure to check whether the lender levies no home loan prepayment charges. If this facility is available, opt for it to easily prepay any sum. The faster you become burden-free, the sooner you can also apply for other loans without financial worries.