5 Simple Steps To Prepay A Home Loan

  Author: Naveen Kumar

The longer you take to repay your home loan, more interest you pay. That’s why it is always a smart idea to prepay the home loan before the end of its tenure. If you are wondering how to go about home loan prepayment, here is a five step action plan.

Avoid prepayment penalty You need to avoid any prepayment penalty on your home loan. Typically, there is no prepayment penalty on floating rate home loan. However, a fixed rate home loan may have a penalty. In case of a hybrid loan, typically with a fixed interest rate period upfront, it is better that you see off that period and prepay when the floating rate period starts.

Choose suitable prepayment method After you save for an entire year, you can typically make an annual partial prepayment. Else, you can request the lender to bring down the tenure of the loan by increasing your EMI to a level which you can afford. This will ensure faster loan repayment.

Invest in better return alternatives Home loan comes with tax advantages under Section 80C for home loan principal repayment and under Section 24 for home loan interest payment. Some people prefer investing their surplus to generate higher returns after tax. They hope to use this later prepay their home loan. However, this route makes sense for savvy individuals who rarely falter with their investments.

Go for periodic partial prepayments For many, it would be difficult to pay off the home loan at one go. They might be better served by making successive partial prepayments to reduce the outstanding home loan amount and try to accelerate the home loan repayment.

Prepaying your home loan is always a good idea if there are no prepayment charges. So, always be on the lookout of getting rid of the home loan at the earliest and make the home completely your own.