You can repay the outstanding amount by either making a part or full repayment of the home loan. However, prepayment charges are applicable. HDFC also offers a free-of-charge option to speed up your loan repayment which is known as 'Accelerated Repayment Scheme'.
The home loan part pre-payment facility allows you to pay off a substantial portion of the principal outstanding before its due date. This helps you save on your overall interest payment and leads to an EMI reduction, a tenor reduction, or both.
HDFC Bank enables a personal loan borrower to make a pre-closure or a pre-payment of loan. However, you will be able to prepay your HDFC personal loan only after 12 months after you have procured your loan and after paying 12 EMIs plus the foreclosure charges that may be applicable.
While on adjustable rate home loans there are no prepayment charges, on fixed rate home loans, lenders usually charge a penalty of 2 percent of the amount being prepaid through refinance, i.e. when you borrow to prepay your home loan.
Yes, you can pay more than the regular EMI. The excess amount will not only decrease your principal outstanding, but also reduce your interest burden.
Prepaying a home loan is the best thing that a borrower can do. Most lenders will not tell you this because they don't make money unless you pay them interest. The smartest way to save money is by closing your loans early, preferably through small and regular prepayments.
The lesser the principal amount (owing to faster repayment), the lesser the interest amount to be repaid. If you can, then pay more than the regular EMI. The surplus amount will not only reduce your principal outstanding, but also your interest burden.
When you pay your EMI, the interest amount is deducted and the rest is paid towards the principal. Now, when you make a prepayment, the total principal outstanding is reduced. This, in turn, will reduce the interest calculated at the end of the month.
We offer our existing customer the option to reduce the applicable rate of interest on the loan (by changing the spread or switching between schemes) through our Conversion Facility. You can take advantage of this facility by paying a nominal fee and opt for either reducing your monthly instalment (EMI) or loan tenure.
Increase EMI if you can
Higher EMIs not only help you get rid of a liability faster but also save big on interest outflow. As a general principle, the longer the loan tenure, the higher the total interest amount you pay on your loan, says Gaurav Gupta, co-founder and CEO, Myloancare.in.
No, your credit score will not reduce if you prepay your loan.
No matter what your loan amount is, prepayment at regular intervals will complete the loan much earlier than the original tenure. Besides paying EMI, you need to keep pre-paying principal on a regular basis. Set aside a certain sum each month, quarter or on an annual basis.
The first step is to add your loan account to your internet banking profile. Once you have added the loan account you can view your loan account ledger and continue transactions. To make a prepayment all you need to do is transfer money to the loan account.
A prepayment penalty is a fee that lenders charge when you pay off part (part-prepayment) or all (foreclosure) of your debt before the due date or the end of the loan tenor.
Part payment of a personal loan happens when you have a lump sum amount of idle money, but is not equivalent to the entire principal outstanding loan amount. Part payment works because it brings down the principal amount unpaid, which in turn brings down your EMIs and the total interest you pay.
Prepayment risk is essentially the risk that the mortgage-backed security buyer will receive, say, seven years of interest income at an agreed-upon rate, on top of principal repayment, instead of 10 years of such interest. Prepayment forces the buyer to reinvest the principal, often at a lower rate of return.
Also, if you prepay the loan after the tenure of 6 months, you have the option to prepay up to 25%. For prepaying the principal amount above 25%, you will have to pay a prepayment fee of 2%. Further, for home loans on fixed interest rates, there are no charges on prepayment through own funds.
In case the amount of EMI is very high compared to monthly income – e.g. over 40-50 per cent of salary/income – it's better to use lump sum money to repay a part of it to reduce the EMI amount.
The moment the principal comes down, so will the interest cost. Paying off your home loan early can save you lakhs of rupees over the loan duration. You will free up your cash flow for other goals: As you are no longer making monthly home loan payments, you have more money in your pocket to spend on other things.
Repaying the remaining EMIs at one-shot is a great way to go debt-free and boost your credit score. Repaying all EMIs at once is known as pre-closing the loan account. If you wish to pay all the pending EMIs at one go, here's what you should do. Visit the loan officer at your nearest HDFC bank branch.
But at a later stage in your loan, a major portion of the EMI is adjusted to reduce the outstanding principal. So, you might also want to make substantial part-prepayments during the initial years of your home loan not just to save on the interest outgo but also to cut down your tenure and become debt-free sooner.
At Par: On computing present value of all future savings envisaged after prepayment, EMI reduction and Tenure reduction is almost at par. But still, tenure reduction is slightly more profitable.