Just like all other financial instruments, a loan against property is a big commitment. With your asset or high-value property at stake, it is natural for you to want to repay the loan as quickly as possible to be able to free up the property.
Thankfully, as per the RBI guidelines for loan against property, you can partially prepay the loan during the tenor and work toward this goal.
This is a common approach for borrowers who come into excess funds, and it is usually quite a prudent decision. However, prepaying a loan against property isn’t always a smart idea.
To know more about the undertaking and to understand it better, read on.
Partial or full prepayment is among the few ways that you can clear your debt before its tenor. In this case, it means you can opt to repay the outstanding principal amount on the loan with any excess funds you may have on hand over and above your regular EMIs. The benefit of doing so is that it lowers the total interest payable and can make the loan a lot cheaper.
By partially prepaying a portion of the loan, you may also have the option to decrease the tenor applicable, which may be helpful based on your financial goals. However, there are downsides to doing so. To know more about these, keep reading.
According to loan against property RBI guidelines, lenders are permitted to levy a charge for prepayment. As a result, many lenders may have quite a high fee that you will have to pay when opting to prepay. In many cases, this fee counteracts any savings you would have made, making prepayment a lot less valuable or financially viable.
Secondly, prepaying at the wrong time doesn’t result in noteworthy savings. In the earlier portions of the tenor, the EMIs consist of a higher portion toward the interest and a smaller portion toward the principal.
Naturally, prepaying during this time has the most value as the interest is calculated based on the outstanding principal. When you prepay, you lower the principal loan amount and this results in savings. However, many borrowers only come into excess funds much later into the tenor, which is when the interest component paid through EMIs is much smaller.
Lastly, to make a part-prepayment, you will need a lump sum that is at least equivalent to a minimum of 3 EMIs. This is quite a sum and may bring in savings lower than the amount you would earn if you simply invested these funds.
For instance, if you choose to prepay late into the tenor, it would be much wiser to invest the money as the returns would likely be higher by the end of the loan tenor.
The best way to be sure of the timing and know whether you are making the right decision is to use the Loan Against Property Part Prepayment Calculator. This tool gives you accurate results and allows you to know exactly how much you’d save, based on the payment you can make.
This calculator is a simple online tool in which you will have to enter the loan amount, tenor, interest rate, and prepayment amount in order to calculate how prepaying can affect your EMIs. You can toggle or enter multiple numbers for each component to deduce the changes in the EMI and then decide whether opting for a part prepayment will prove beneficial for you.
Ideally, for an affordable and cost-effective experience, look for a trusted lender who offers you a loan on affordable terms to keep the repayment easy on your pocket. Choose Bajaj Housing Finance Loan Against Property to enjoy these benefits and much more.
With this loan, you can access a sizable sanction on an affordable interest rate and repay over a flexible tenor of up to 18 years. Simply meet the easy eligibility terms of the loan and apply using minimal documents to get a sanction within 72 hours* of applying for the loan.
Moreover, you can access all your loan details online from anywhere and anytime, without having to step out to visit a branch offline. To start your journey as a borrower, all you have to do is apply online by filling the easy form.
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Last update on 11-Mar-2021
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