How To Prepay Your Residential Project Loan With Your Annual Bonus?

Home loans can be a big burden for you when you apply for them. Having a big loan amount over your head and big EMI amounts to pay every month can be tiresome. So when you plan to buy new residential projects in Pune with a home loan, do make sure to use your annual bonus to pay some of the amounts back through pre-payment.

 

What is a prepayment?

 

Usually, people try to pay off the home loan that has a long tenure as soon as possible so that they don’t have to pay a lot of interest to the bank. You can opt for pre-payment.

 

Prepayment of a home loan refers to the payment of your home loan along with your regular EMIs. Your total prepayment amount is adjusted with the principal amount, hence reducing the outstanding principal.

 

Part prepayment: In this case, you pay only a part of your principal amount to the bank and the principal amount is adjusted, so is the interest rate. Here, your interest rate is automatically reduced due to a lower principal amount.

 

Full Prepayment: In this case, you close your home loan by paying the full principal amount. With this, the outstanding amount is repaid and the loan is closed. It is also called Foreclosure.

 

How does prepayment work?

 

We will focus more on part pre-payment in this article when you opt for a home for new residential projects in Pune.

 

Let's take the example of Mr Kumar, who is a 30-year-old Media professional, he bought a 2BHK apartment in Pune for Rs. 40 lakhs in January 2020. For this, he took a home loan of 32 lakhs for 20 years at a 7% interest rate from a bank. He pays an EMI of Rs. 24,810.

 

In April 2020, he got a promotion at a 10% hike in her salary. Now in August 2020, she received an additional amount of Rs. 1 lakh that had an annual bonus, income tax refunds etc. He then decides to pay this Rs lakh towards his home loan.

 

So, until August 2020, he had paid total EMIs of Rs 2 lakhs (Rs 24,810 x 8 months) of which Rs, 50,000 was the principal repaid, and Rs. 15 lakhs interest. Thus the outstanding principal amount comes out as Rs. 31.5 lakhs and now when he pays Rs 1 lakh, his principal amount will be reduced to Rs. 30.5 lakhs.

 

Now, he can either reduce the tenure or reduce the EMI of the loan and keep the tenure constant.

 

Pre–payment is very beneficial as you save a lot on the interest amount. So when you invest in new residential projects in Pune and opt for home loans, make sure that you have some big plans of part pre-payment so that it cushions your financial yearly plans and reduces the overall stress of a home loan.

 

Most lenders don't allow pre–payment in the first few months of the loan, you can check the rules and guidelines from your bank.