For an Indian, the buying of a house is one of the fantasies often thought about. Will you use the capital to prepay a new home loan or spend it in other investment assets if there is any excess liquidity? Let us move to the pros and cons of home loan prepayment.
Advantages:
- No prepayment fee
If the house loan is floated at a floating interest rate, the RBI Guideline does not enforce an advance payment fee. home loan Prepayment is also a reasonable choice in this respect.
- Reduce the outstanding loan amount you get
The advance payment would minimize the outstanding principal.
- Lower period of tenure
While retaining the EMI and that term, you will experience the impact of interest payments on your home loan. Your main balance is therefore cleared more easily.
- Reducing the EMI
If you want to pay on time, the lender will retain the tenure, and reduce the EMI to clear the balance. You’ve got more money in your pockets than you have before.
- If the interest rate rises in the future, you benefit
When you foresee a rise in mortgage borrowing prices in the future by paying in full, you may have to compensate in full because you can incur greater interest on the lower debtor balance when buying out in advance.
- Increase credit score
The purpose of the advance payment is to reduce your loan account’s balance, which is directly linked to your credit interest, thus rendering your creditworthiness more profitable. You have to make sure that the loan is transferred to the lending office via the prepayment request.
- Home loan tax benefits
If the house is self-occupied, a deduction under section 24 shall be permitted up to a limit of Rs 2 lakhs, of the interest rate portion charged within a financial year.
Disadvantages:
- Charges of Prepayment
The lender may make an upfront charge that may reach up to 3 percent of the balance on your home loan account if the home loan is obtained on the basis of a fixed interest rate.
- Lose some tax benefits
For all interest rates and principal recovery, the Profits Tax Act provides tax incentives for home loans. If you reimburse the debt in full, you can lose those advantages. Once you agree to prepay or not to pay, you would do well to contact the auditor and consider all things.
- Loss of chance to clear more costly loans
Home loans that are guaranteed loans typically offer the lowest rate of interest. You may have a particular kind of loan, whether personal loans or car loans or even business loans. And it is wise to clear the loans which bear a higher interest cost because you have any capital to prepay any loans. Rather, you would miss the possibility of rising interest outflow on costlier loans if you prepay your home loan.
- Loss of investment chance
With the choice to prepay a house loan or invest in certain options, you have lump sum savings, which may generate better profits. Therefore, you can contact your financial adviser to make the correct choice by looking at certain assets beyond the opportunity to pay in advance.
I am Arjun Kumar. I am the owner and administrator of Finance Gradeup. I have completed my education in Arts & Technology. Arjun Kumar usually has interests in playing games, reading and writing. He was a brilliant student during his college days. He also works for many private companies, but the main interest of Arjun Kumar is digital marketing. He thinks that reading is a must before providing any quality information to his readers. You can find Arjun Kumar on much social media handles online, or you can learn more about him in about us page.