Received your annual bonus Think about using it to pay off your home loan early

As many people have got their annual bonuses. Congratulations! If you are one of them. People often use their annual bonuses as they wish to do, such as some go for vacations, some use for buying a vehicle, purchasing clothes, trading in stock market, but that’s completely okay. Many people who have bought a home and they have an ongoing home loan then why don’t you consider prepaying your home loan? This will be the best option for you. Since the home loan is a huge amount, prepaying some part of it makes it feel relaxed, less of a burden, closing the loan faster and has a number of advantages. Let’s discuss more in detail

What is Home Loan Prepayment?

Home loan prepayment means paying extra money towards your loan principal on top of your regular EMI payments. This reduces the principal amount, which lowers the interest you pay and shortens the loan term.

You can choose if you can go for Part-prepayment or Full-prepayment

• Part-prepayment: Paying a limited amount towards the outstanding principal. So by doing this the principal amount is reduced.
• Full-prepayment: This refers to the total amount to the outstanding principal amount.

Why should you consider the option to prepay the loan?

1. Get small relief from Interest Rate:

One big benefit of prepaying your home loan is that it lowers the total interest you pay. With long-term loans, you might end up paying as much in interest as the loan amount itself. By prepaying some of the loan, you reduce the principal and, therefore, the interest you need to pay.

1. Shorter Loan Tenure

Prepaying your home loan can shorten the loan period. This means you can pay off your debt faster, giving you more financial freedom and peace of mind.

Example:

• Current EMI: ₹43,391 (for a ₹50 lakh loan at 8.5% p.a. for 20 years)
• After Prepayment of ₹5 lakhs: The loan tenure could reduce by 2-3 years, depending on the terms of the loan.

1. Improved Financial Health

Prepaying your home loan improves your financial health. It lowers your debt-to-income ratio, making you more likely to qualify for future loans or credit. It also boosts your credit score, which is good for your credit report.

1. Peace of Mind

Reducing your debt helps with peace of mind. Knowing you're closer to being debt-free lowers stress and lets you focus on other financial goals.

1. It helps you save money

You should know that when you make a prepayment the tenure will be reduced and you can close the loan quickly and also the long term interest rate will not impact you.

1. Tax Benefits

Basically, you can avail a tax benefit on the principal amount under Section 80(C). You can enjoy up to 1.5 lakh.

What are the prepayment charges for repaying the loan?

You should know the below things for prepayment charges:

• Prepayment charges vary from bank to bank.
• Those who avail for Floating interest rate no prepayment charges will be there.
• Only fixed interest rate prepayment charges will be charged by banks. Usually in between 2-3%.
• 18% tax for prepayment charges

Summary

Conclusion

Using your annual bonus to prepay your home loan can be a smart move. It lowers your interest payments, shortens the loan term, and improves your financial health. Even though there are tax benefits to think about, the savings from less interest usually outweigh these. Check your finances, calculate the benefits, and decide if this will help you achieve financial freedom sooner.

How can EasyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.

Check the details here at EazyBankLoan

Need help? Reach out at support@eazybankloan.com

Frequently Asked Questions (FAQs)

1. Is it wise to prepay a home loan with a bonus?

• Yes, prepaying your home loan with a bonus can significantly reduce your interest burden and help you become debt-free sooner.

1. How much should I prepay towards my home loan?

• The amount you should prepay depends on your financial situation. Use online calculators to determine the benefits and ensure you have sufficient emergency funds.

1. Are there any penalties for prepaying a home loan?

• Yes, there will be prepayment penalties, especially for fixed-rate loans. Check with your lender to understand any charges.

1. How does prepaying affect my loan tenure?

• Prepaying reduces the principal amount, which can either reduce your EMI or shorten your loan tenure, depending on your preference.