Home loans are a long-term financial commitment that often last for several years. However, there are ways to reduce your financial burden, and one of the best methods is through part prepayment. Many borrowers, especially in tier 2 and tier 3 cities, are not fully aware of how part prepayment works and how it can benefit them.
In this blog, we will explain what home loan part prepayment is and how it works.
What is Home Loan Part Prepayment?
Part prepayment is the process of paying an additional lump sum amount toward your home loan over and above your regular monthly EMIs. This helps in reducing the outstanding principal amount, which in turn lowers the total interest you will pay over the loan tenure. It’s different from full prepayment, where the entire loan is repaid before the scheduled time. With part prepayment, you repay only a portion of your loan early, without completely closing the loan.
If you are considering this option, using a part prepayment calculator is essential. It helps you calculate how your part prepayment will impact your loan repayment, interest, and EMI.
How Does Part Prepayment Work?
When you make a part prepayment on your home loan, the lender gives you two options: either reduce your EMI or reduce the loan tenure. Both options have their benefits.
Reducing the EMI: If you choose to reduce the EMI, the amount you pay monthly will decrease, which means less pressure on your monthly budget. This option is useful for borrowers who want to lower their financial load while still continuing with the loan.
Reducing the Loan Tenure: If you opt to reduce the tenure, the loan will be repaid faster, which means you’ll pay less interest over time. This option is ideal for those who want to get rid of their loan as quickly as possible.
Using a part prepayment calculator helps you decide which option is best for you by showing you how much you’ll save in both scenarios.
Benefits of Home Loan Part Prepayment
Interest Savings: The most significant benefit of part prepayment is the reduction in the total interest you pay. By reducing the outstanding principal, the interest charged on the loan decreases, leading to substantial savings over the long term.
Faster Loan Closure: If you choose to reduce the loan tenure, you can close your loan earlier than the original term. This not only frees you from debt sooner but also saves you a considerable amount in interest.
Flexibility: Part prepayment offers flexibility since you can make these payments whenever you have extra funds, like bonuses or profits from investments.
How to Use a Part Prepayment Calculator
Before making a part prepayment, it’s important to calculate its impact. A part prepayment calculator allows you to input the loan amount, tenure, interest rate, and the prepayment amount to see how much you’ll save on interest and how your EMIs or loan tenure will change. This gives you a clear picture of the benefits, making it easier to plan your finances.
Conclusion
Home loan part prepayment is a smart strategy for reducing your loan burden and saving on interest. Whether you want to lower your EMIs or shorten your loan tenure, part prepayment gives you the flexibility to manage your loan effectively. Using a part prepayment calculator helps you make informed decisions, ensuring that you get the maximum benefit from your hard-earned money.
