A
beautiful home at the centre of the city equipped with all the
necessary amenities is a dream of every individual. To fulfill this
dream, one could easily get a home loan and acquire the house without
saving large sum of money. However, with the recent fall in rupee the
home loan interest rates have gone up. People who have already applied
or are intending to apply for loans with floating interest rates are
going to suffer the most, reports Rediff.com.
To relieve people
from the burden of high interest, partial prepayment of home loans can
be an effective way to save money and enjoy various benefits.
What is partial prepayment of home loan?
Longer the tenure of
the loan more will be the money spent in home loan interest. An
effective way of bringing down the tenure of loan is partial prepayment
in which one should pay additional principal amount along with the usual
EMI. Partial prepayment is feasible when the amount that is accumulated
to prepay loan is saved after taking care of short-term liquidity
needs. The person paying the loan should be comfortable with his current
EMI and should not have any other high cost loans. The method of
prepayment helps to reduce the outstanding principal amount and
therefore the tenure comes down while EMI remains the same. Most banks
don’t charge any penalty for prepayment but the amount that can be
prepaid should be discussed with the respective banks.
The
benefits of partial prepayment are invaluable. It guarantees savings
in interest expenses and sometimes it is more beneficial than tax
savings. Some of the benefits are as follows-
1. Guaranteed saving in interest expenses
When loan tenure
comes down, the interest expenses see a dip as well since the number of
years for which interest has to be paid comes down. This is guaranteed
saving in interest expenses while investing money for better return
might not always mean saving. Under section 80C, prepayment of principal
leads to reduction in debt and hence one could reap the benefits of
reduced interest expenses.
2. Sooner the prepayment better the savings
In the beginning of
the payment period of home loan, the interest rate is highest and
therefore partial prepayment of principal in this period will be more
meaningful than prepayment done on the later years. For example, if at
the end of one year someone has prepaid an amount of 
3 lakh for a loan of 30 lakh at interest rate of 11 percent for 30 years, he would be able to save 15
Lakh. While partial prepayment done at the end of 5 years for the same
amount of loan at the same interest and tenure would lead to savings of
only 9.8 lakh. Hence, sooner the prepayments better the savings.
3 lakh for a loan of 30 lakh at interest rate of 11 percent for 30 years, he would be able to save 15
Lakh. While partial prepayment done at the end of 5 years for the same
amount of loan at the same interest and tenure would lead to savings of
only 9.8 lakh. Hence, sooner the prepayments better the savings.
3. Impact on tax savings
On taking a home
loan, one could avail tax benefits which may get impacted by prepayment
of principal. However, a careful analysis reveals that the savings in
interest expenses is higher than tax savings, especially when the
prepayment is done in the beginning of payment period. For self-occupied
property there may not be any change in tax benefits since interest
deduction is limited at 1.5
lakh. For let-out-property the person may have to sacrifice on tax
benefits but even then the savings on interest expenses will be better
than tax benefits.
1.5
lakh. For let-out-property the person may have to sacrifice on tax
benefits but even then the savings on interest expenses will be better
than tax benefits.
4. The process of prepayment should not continue
Most of the people
believe that to enjoy maximum benefits one should prepay till the loan
becomes zero. But since the interest is highest in the beginning, the
bank receives the major amount of interest at the starting of loan
tenure. Once a handsome amount of the loan is prepaid, one should not
worry about prepayment of principal on the latter half of loan tenure as
savings on interest will significantly come down.
Hence, partial prepayment of principal is a smart move to save money while paying for home loans.
घर खरेदी करताना भरावे लागणारे शुल्क
गृहकर्ज घेताना बँकांमध्ये भरावे लागणारे शुल्क
बचतीचे ओझे
घर खरेदीद्वारे महागाईला शह
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