A home loan in India is often the largest financial commitment a borrower makes in their lifetime. It is, hence, a good idea to always make a full prepayment or at least part-prepayments besides regular EMIs. It must be done whenever feasible during the home loan tenor to cut down the home loan interest obligations and be debt-free faster. This becomes more beneficial as lenders do not levy a prepayment charge for a floating-rate home loan.
How Much to Prepay
Some lenders limit home loan part-prepayment if the prepayment of the home loan amount is below the threshold they have predefined. Most lenders require an amount that exceeds the current EMI to make the part prepayment. However, some financial institutions need at least three times the ongoing home loan EMI amount for even a part prepayment. So, before planning to make a home loan part prepayment, a borrower has to ensure that they have clarity about the terms and conditions.
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What Is a Home Loan Prepayment Calculator?
A home loan prepayment calculator is a free online tool that helps home loan borrowers assess the suitability of prepayment. Essentially, it is a home loan EMI calculator with prepayment calculations.
This advanced loan prepayment calculator permits home loan borrowers to determine four areas of housing credit when the prepayment is done. These include:
- The revised home loan instalment amount
- The percentage of home loan EMI saved
- Home loan tenor reduction
- Dues and savings with each home loan EMI payment
The Bajaj Finserv prepayment calculator simplifies the otherwise complicated computations. Home loan borrowers can use the online tool to make an informed decision regarding prepayment of their home loan.
For a better understanding of how the calculation works, let’s consider the below example.
Let’s say that the home loan amount (principal) is Rs.20 lakh, the loan tenor is 20 years, and the home loan interest rate is at 9% per annum, using a home loan prepayment calculator, a borrower will observe that their home loan EMI without prepayment is Rs.17,995.
Now let us consider that the borrower has made a prepayment of Rs.1 lakh. The revised EMI will be Rs.17,095. That reduces Rs.900 per month (5% EMI savings). A borrower can also choose to keep EMIs at Rs.17,995 and reduce the home loan tenor.
Using this home loan prepayment calculator can help find how to pay off a home loan faster.
How to Access a Home Loan Prepayment Calculator for Prepayment of Home Loan
A home loan prepayment calculator is an easy-to-use tool. All a borrower needs to do is enter their home loan process details and the amount they wish to prepay.
While using the home loan prepayment calculator, the user has to move the sliders to the right or left to adjust the values. An alternative would be to type out the values for:
1) The home loan amount
2) Loan tenor in months
3) Home loan interest rate
4) The desired prepayment amounts
Once these details have been inserted, they must tap on ‘Done.’ Typically, two options will appear:
1) Home loan EMI saved:
A table will reflect the EMI reductions and month-on-month savings on EMI outgo in case of a part prepayment
2) Loan tenor saved:
A table will reflect the reduction in the home loan tenor after part prepayment
Costs of Home Loan Prepayment
The RBI mandates that lenders to do not levy additional charges in the case of floating interest rates. Thus, lenders do not levy a prepayment penalty on a floating rate home loan, but they may levy a prepayment penalty of about 2% of the home loan amount prepaid in a fixed rate home loan.
The Final Word
While repaying a housing loan via prepayments to be debt-free is an ideal scenario, doing so should not undermine other financial goals, such as the emergency fund, retirement goals, child’s education fund, and so on. A borrower must always keep in mind that efforts to arrange funds for a home loan prepayment must not leave them vulnerable to their life’s vagaries or disturb any other essential financial goal.
Also read: Know Your Net Worth