Home loan prepayments: Some important points

The high home loan interest rates haveforced the borrowers to think of prepayments. However, prepayment ofhome loans shouldn’t be just done impulsively. There are a lot offactors to consider before making a decision to prepay a home loan ornot. Here are some basic things to consider.

Factorsto consider before prepayment:

The current financial situation of theborrower: Is there enough money floating around to prepay the homeloan?

How much money is needed immediately orin near future: Does the borrower have enough money to meet financialexigencies?

The home loan interest rates: Are theylikely to rise, remain at the same level or fall?

Are there investment options availablewhich can give better returns (of course with minimal risks) than thecurrent ?

Importantpoints:

Always calculate the total amount youhave to pay to the bank. This included the home loan interest withthe principal. This will give you a clear idea on the amount of moneyyou owe to the bank.

If you are planning to invest the moneyinstead of prepaying, calculate the total earnings by investmentsover the entire duration of loan amount. Always deduct the taxliabilities so as to reach exact figures. If subtracting your homeloan repayment from the gains from investing, provide a surplusamount – it is always better to invest your money.

Prepayment penalties are also to bepaid to the bank if you are not able to provide proofs that the moneyyou are using to prepay is from windfall gains or your own. (Peoplegenerally use Home loan balance transfers and get the money fromother banks. In such cases banks will charge prepayment penalties).

If your has stretchedsubstantially due to the increase in interest rates, consider makingpart- prepayments if your situation permits to keep the home loantenure to the same levels.