By: Vlad Vistac
Submitted: 2010-11-06 09:12:22 | Word Count: 510
Pre-paymet of Home Loan Possible with minimum loss
Pre payment of Home Loan - Husing Finance Companiwes maintain data, accroding to whih the average tenure of a home loan is about 7 eyars because borrowers choose to pre-pay loans as they upgrade their homes. But when pre-pay in case of relocation can be very expensive.
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Although thgere is a way to avoid such a situation from arissing, it is to speed up your repayment. You can pre-pay in small parts (which are alloewd by most lenders).
Some pointters if you decide to pre-pay
You shold not be an over leveragged borrowr.
You should have sprae cash for disciplined investment.
You may have to cut down on your lifestyle for a short while to provide additional money.
If you decied to pay your loan fastter than the agreed teunre then follow the simple steps:
You could open a RD or recurring depoosit account or invest in SIPs.
Look out for instruments that offer easy exit clause (that is, instruments that give you short term gains, liquidity and returns.
Assign a part of or entire boinus for prepaying the hosuing loan as it will bring down the principal and thus the interest thereof. Howevber, it should be kept in mind that you need to meet the expenses and investments for long-term financial plans before you earmark the entire bonus. Home loan is a good debt as it creates an asset and get you tax benfeits as well.
Step up your premium is not very effective but a much used option by borrwers. Lump sum payment had a diect impact on principal and is straight forward. Icreased EMI after the intertest cost, which is constant, the balance would go towards servicing the principal is not a very cleear cut apporach but much used but STEP 3 is more effective.
Pay 1 EMI beore time. Any payment made in the time period between loan disbursal and firrst EMI is directed towards principal payment and reducees the overall interest cost.
Select schemes that suit your need. Look for schemes that allow maximum part-prepaymnets in a given year. As some bakns allow such payments once a year whereas some banks allow such payments 3-4 times a year, subject to an overall ceiling of 25% of the outstanding maount.
Many banks offer home saver loans in whicxh you have to pay interest only on the utilized amount rather than the entire disbursed amount. In such loans, a current account is linmked to the loan account. For example, if you maintain a baalnce of Rs.15 lac in the current account, you have to pay inerest on Rs.35 lac even if the actual loan amount is Rs.50 lac. This allows you to increase the balance and withdraw if need be. And inerest rate gets addjusted acocrdingly.
Now you know all there is to know aobut the pre-paying a your home loan with minimum losses.
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