How To Use A Home Loan Prepayment Calculator?

A housing loan prepayment calculator helps you to know about the EMIs meant to be paid to repay your loan before tenure. You can also check the sum of money that you can save by prepaying loans using this home loan or a house loan repayment calculator. 

This article has all the information about this calculator and its functions.

RBI Guidelines for Home Loan Foreclosure Penalty

In 2019, the Reserve Bank of India (RBI) declared that HFCs would not be able to levy any prepayment penalties or foreclosure charges on home loan prepayments in these cases.

• If you have applied for a home loan against a floating interest rate. 
• In case you have chosen a fixed rate of interest on a home loan and are prepaying the loan amount out of your own sources.  
• When you shift to a floating rate of interest regime after making a partial prepayment. 

According to the guidelines of RBI, financial companies are liable to impose prepayment charges on an outstanding amount of loan only. In such a case, prepayment charges usually range between 2% – 3%. 

Mentioned below are the scenarios when financial institutions can levy charges on house loan prepayments. Check the same below.

• When companies or organisations choose a home loan, they will have to pay such charges. 
• Financial firms may also charge such a penalty if borrowers decide to foreclose a home loan at a dual rate.  
• If anyone borrows a sum of money from a lending institution to prepay a fixed rate home loan, then they will have to pay such prepayment charges.

Along with this, the apex bank made another important declaration. It declared a circular which states that all non-banking finance companies must hold at least 60% of net assets deployed in the business of financing for houses. Firms not fulfilling this criterion must get the same done in a phased manner by 31 March 2024. 

Also Read: Home Loans: Types, Interest Rates, How To Apply And Benefits

How to Use a Home Loan Prepayment Calculator?

You can use a home loan prepayment calculator to calculate your outstanding EMIs and savings from prepaying your loans in part or full before the loan tenure. To use this housing loan repayment calculator, you will have to provide the following details:

• Amount of loan
• Rate of interest
• Loan tenure
• Prepayment amount 

By using the house loan repayment calculator, you can determine the following aspects of a loan as mentioned below:

• Savings on EMI 
• Revised tenure 
• Revised instalment amount

Computing your EMIs, and analysing your savings on prepaying a loan manually can become a cumbersome process. Thus, using a housing loan prepayment calculator online can be handy.

Also Read: How To Compare Home Loans With A Home Loan EMI Calculator

Best Ways to Make Faster Home Loan Repayment

Here we will share information about smart ways to benefit from house loan prepayments. Please check the same below.

Make a down payment that exceeds 20%

Paying a certain sum of money as a down payment against your loan will reduce your debt burden significantly. With a lower debt burden, your interest rate will be lower. Also, your overall prepayment amount will get reduced. 

But how much should be my down payment percentage?

You can consider paying 20 – 30% of your loan amount as a down payment. However, this will depend on your financial situation.

Pay in part

Part home loan prepayments can be useful in reducing the principal amount and also the subsequent EMIs that you will have to pay. Lower EMIs will ease the debt burden and you can easily pay them on the time. Such an approach will help to clear out the loan well within the tenure.

Go for shorter tenure

Shorter tenure will result in higher EMIs repayments. But in return, you will be able to repay your loan within a shorter period. Short tenure will also mean significantly lower interest rates. Clearing loans in a shorter duration will also boost your credit score.

Choose a lender with lower interest rates

Whenever you apply for a loan it is important to look at the interest rates. This will ensure that your EMIs are affordable so that you can repay them on time.

Pay higher EMIs

If it is possible, try paying higher EMIs for a loan. This considerably reduces your overall debt burden. 

For example, a borrower opts to increase his or her EMIs by Rs. 5,000 each month on a home loan of Rs. 20 lakhs. After the 11th year of repayment, he or she can save nearly Rs. 2.4 lakhs on the total payable interest. The tenure of loan payment will also get reduced by about 36 months. 

Full home loan repayments

If borrowers possess surplus funds individuals, they can make a full prepayment of their loan before the loan tenure expires. This is known as foreclosure of a home loan.

Also Read: Home Loans Tax Benefits: Exemptions Under Section 80C, 24(b), 80EE, & 80EEA

What is Foreclosure Month?

It is the month in the loan repayment period when you completely repay the full loan amount in advance. For example – If your loan tenure is for 6 years (72 months), and you decide to make a full prepayment by 4 years 6 (54) months, then your foreclosure month will be the 54th month.

What Is the Interest Amount Saved on a Foreclosure?

Banking institutions normally charge 1% – 4% on the payable amount as foreclosure charges. Certain loan providers do not charge this amount as well. Check these charges before applying for a loan.

Final Words

Prepaying a home loan can help you save some money and boost your CIBIL score. But you must take note of the charges incurred during prepayment. A home loan prepayment calculator will help you understand your savings for partial repayment of your loan. Accordingly, you can plan your loan settlement. 

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