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Prepayment of Home Loan - Is it a Good Idea or Bad


Loans, especially home loans, in acountry like Indiaare taken up commonly but they are usually come with lot of hassle. Such thingshappen because while your immediate financial need is met with the large sum that the lender provides you has recurring aspects associated with it. Therefore, it is a common tendency for people to try and finish paying the loan off as soon as possible and if there is a sudden inflow of cash in your finances, you may also consider prepaying your loan. Doing so means that you pay the remaining outstanding sum of your loan before the actual tenure is over. Let us tell you all about whether or not it is a good idea to do so.

When should you do it

Apart from considering the risk factor associated with property seizing by lender to recover money, you must also consider aspects of financial benefits that come with it. This is to say that if you observe your finances looking up, it is advisable to prepay your loan during the early stages of the loan tenure. Such a thing will help you save more on the interest payout that you were otherwise going to incur. You must also be aware that there are certain lending institutions that have a mandatory lock in period of minimum one year before finishing which you are not allowed to prepay the amount.

Charges that you may incur

It has been observed that most borrowers that consider prepaying their loans are usually not aware that there are certain charges involved in the process. Some details of it have been listed below.
·         Prepayment charges of a certain percentage are usually levied by the lending institution for their interest is unexpectedly cut short.

·         Most commonly NBFCs charge a rate of about 1to 4percent of the amount that is outstanding.
·         This prepayment charge must not exceed what you were going to pay if the loan tenure were to be completed.

Awareness of clause is safest bet

Going forward with such a thing as prepayment of your loan- a practice that is most commonly adapted in case of Home Loan, for fear of losing the property in case of payment default, the most important factor is having adequate information. It must be kept in mind that different lending houses or NBFCs have different way of functioning and clauses put in place for unforeseen requests for loan prepayment. These factors are integral to comprehend whether you are solely eliminating the risk factor associated with loans or also incurring certain financial benefits from doing so.

Therefore, it is important to comprehend that while traditional financial advising always involves elimination of risk factor by prepayment of loan, with the changing policies of NBFCs it might not just be as viable all the time as during older times. But one cannot deny that it often brings about a rather greater degree of mental peace mostly in case of Home Loan.

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