Home loans allow individuals to realise their dream of homeownership without compromising on other expenses. Today, there are various ways one can apply for a home loan. With the digital transformation, prospective homebuyers can now apply for a home loan on WhatsApp. It is a safe method to apply for a home loan.
Lenders sanction a loan amount based on the loan applicant’s age, income, debt-to-income ratio, etc. The loan is repaid in the form of home loan EMIs. Each EMI constitutes a principal component and an interest component. Borrowers have the flexibility to decide the home loan repayment tenor keeping in mind their convenience, income and other things.
Home loan repayment tenor can extend up to 40 years. However, most people try and repay their home loan before the agreed tenor and become debt-free quickly. Reserve Bank of India guidelines make it easier for home loan borrowers to become debt-free quickly if that is their intention.
As per the latest guidelines, home loan borrowers on floating interest rates can prepay or foreclose their loans whenever they want without paying any penalty.
Prepayment refers to when a home loan applicant pays a small lump sum amount towards one’s principal value. Foreclosure, on the other hand, refers to the process of clearing the entire amount due and closing one’s loan account before the agreed loan tenor.
Prepayments and foreclosure attract a penalty based on whether the loan applicant had opted for fixed or floating interest rates. Individual borrowers on floating interest rates can prepay as well as foreclose their home loans at any point in their home loan journey without paying any penalty or prepayment fee.
However, prepayment and foreclosure fees are applicable in the case of loans availed of at fixed interest rates. Therefore, the decision to prepay or foreclose one’s home loan must be made after performing a thorough cost-benefit analysis and only if the money the loan applicant will save by opting for prepayments or foreclosure is much higher than the penalty involved. A home loan prepayment calculator can prove quite helpful in this regard.
What is a Home Loan Prepayment Calculator?
A home loan prepayment calculator is an online tool that lets loan applicants understand how they will save on interest and the total cost of borrowing the loan if they decide to prepay or foreclose their home loan. The home loan prepayment calculator is fairly easy to use.
Follow these steps to calculate your new EMIs and the new interest payout after a home loan prepayment.
- Search for a home loan prepayment calculator and access this tool on a reliable website.
- Next, enter the remaining home loan amount.
- Enter the amount that you wish to prepay.
- During the next step, enter the remaining home loan tenor.
- After this, enter the interest rate at which you are currently repaying your loan.
- Some home loan prepayment calculators also ask users to share their current EMIs. If the home loan prepayment calculator prompts you to do so, share the required information.
- Once you enter these snippets of information, the home loan prepayment calculator will give you your new EMI as well as the total interest you will have to pay your lender after you prepay the loan. You will also be able to see the total amount you will save by choosing to go for home loan prepayment.
In short, the home loan prepayment calculator is a highly beneficial tool that all borrowers planning to prepay their loans must use. In the next section, we discuss the benefits associated with a home loan prepayment calculator in detail.
Benefits of a Home Loan Prepayment Calculator and Why One Must Use This Tool
- The home loan prepayment calculator helps borrowers save time. More importantly, it saves them from lengthy and mentally taxing calculations, thereby allowing them to dedicate this time to other important tasks.
- The home loan prepayment calculator helps borrowers assess fairly if a home loan prepayment would indeed be a good choice for them. By providing all the information they need at their disposal, a home loan prepayment calculator helps borrowers correctly assess if home loan prepayment would actually allow them to save money in the long run.
- The home loan prepayment calculator is free to use. One need not pay any fee to use this tool. Further, the home loan prepayment calculator helps borrowers decide the ideal time for prepayments that would eventually allow them to save maximum on the total interest payout on their loan.
In conclusion, if you are planning to prepay your home loan, the use of a home loan prepayment calculator is highly recommended.