Everything You Need to Know About Home Loan Part-Prepayment

Competitive interest rates and a flexible repayment tenor play a key role in deciding the feasibility of a housing loan. However, borrowers may sometimes explore ways to reduce the overall cost of a loan. One such option is part-prepayment, where a portion of the loan can be repaid over and above the monthly EMIs. In this article, we will explain what Home Loan part-prepayment means and the essential factors you need to consider before opting for it.  

Understanding Home Loan Prepayment

A Home Loan prepayment or part-prepayment can help you reduce the principal loan amount or the loan tenor.  

If you are planning to part-prepay or prepay your loan, you can use a Home Loan Part Prepayment Calculator to figure out whether opting for it will be beneficial for you. This tool can help you understand how a Home Loan prepayment will affect the total interest outgo and the tenor of the loan as well as determine the revised EMI amount. 

Read Also: What is Prepayment Penalty on Home Loan 

Benefits of Home Loan Part-Prepayment

It helps in reducing the borrowing costs 

When you make a prepayment, you essentially reduce the principal amount. This helps you reduce the total interest payout. Thus, a Home Loan prepayment helps you reduce the cost of borrowing funds. 

It helps in reducing the EMIs

With a reduced principal, you can have the option to either lower your EMIs or keep them unchanged while shortening the loan tenor. Lower EMIs can make loan repayment more feasible.  

Read Also: Home Loan Part-Prepayment Charges and Guidelines 

Factors to Keep in Mind When Prepaying Your Home Loan 

While part-prepayment can be an effective strategy, there are a few considerations you should take into account: 

Prepayment Charges

Individual borrowers with floating interest rate Home Loans do not have to pay any additional fees to prepay their loan. However, if you have availed of a dual-rate Home Loan (fixed for the initial period and then floating), the prepayment charges will be applicable as per the status of the loan as on the part-prepayment date. It is advisable to confirm the terms with your lender to avoid unexpected costs. 

Optimal Time for Prepayment

Payments made during the initial phase of the loan reduce the principal more effectively. Therefore, the earlier you make the prepayment in the loan tenor, the higher the savings on interest.  

Impact on Loan Tenor and EMI 

Decide whether you want to lower your EMIs or reduce the loan tenor. Reducing the tenor will help you repay the loan faster, but lowering EMIs will give you more flexibility in managing your monthly cash flow.