Home loan prepayment


#1

When prepaying a home loan which is a better idea, reduce EMIs or tenure?


#2

The first step in making sure that home loan prepayment works as an advantage for the borrower is to keep the home loan EMI unchanged. If you have a home loan of Rs. 30 Lakhs at 10.5% for 20 years, prepaying Rs. 1 Lakhs will mean cutting EMI by Rs. 1000 from Rs. 30,000 per month to Rs. 29,000 per month. Opting for a same EMI option, you can pay off the entire loan in 18 years reducing the overall interest paid on the loan.


#3

Hi Sohini,
When you prepay a Home Loan, a reduced tenure is always better than reducing your EMI. This way you will be able to pay back your loan faster than before. The interest portion will also be less once you have prepaid the loan. In case you choose reduced EMIs, you will pay more in interest. Here are two posts about Home Loan prepayment that will help you understand this better - https://blog.bankbazaar.com/how-to-plan-home-loan-prepayment/ and https://blog.bankbazaar.com/the-dos-and-donts-of-a-home-loan-prepayment/.
Cheers,
BB Expert