Prepayment of Home Loans gets easy with a bit of planning and discipline

by Finway FSC Empowering People Financially

Adopting an approach of prepayment of loans is not new in the financial domains, but the people in India mostly hesitate to do so when the loan amount is too significant. However, it looks like the case is changing with time and people are taking on prepaying their home loans at a pace like never before. Financial advisors suggest that there prevails a myth that prepayment of loans can choke down the borrower’s cash flow. However, with the aid of numerous certified loan experts in the country, the myth has lately been busted and brought down to ashes. As per the experts, with a disciplined approach and adequate planning methodologies at work people can greatly utilize their bonuses and incentives to make part payments without many difficulties. Statistics suggest that around 65-70% of home loans that have tenure of about 20 to 25 years get repaid within the time of seven to nine years.

Power of Pre Payment

Prepayments need not always have to wait for the windfall time in loan tenure. Instead one can start with small but regular prepayments anytime to ultimately chip away the entire loan before the tenure even ends. Loan experts suggest that people who buy homes with home loans in their late 20s or early 30s are often able to get clear with their loans in the next seven to eight years through the medium of annual increments and bonuses that they are aggressively working to achieve. The idea to do so is to ensure that the lump sum receipts were put to good use without disturbing their retirement planning by any means.

Options to do the prepayments with ease

1. Start with a small amount and then increase it gradually down the line at the rate of 10%.

2. Allot a fixed amount that needs to be paid every year as prepayments without reducing the EMI

3. Increase EMI if you think you can go ahead smoothly even after a liquidity crunch and cut the tenure on an overall.

The tax dilemma

Paying interest to save taxes is not found to be a good idea when the borrowers tend to carry out a proper cost-benefit analysis. Loan experts suggest that if the amount paid as interest on home loans gets invested in other financial instruments, then they would deliver a much higher yield to cover the financial crunch created by tax payments. Financial experts suggest investments made in equity funds yield many lucrative financial opportunities.