When planning your finances, repaying your Home Loan ahead of schedule can be a strategic move. But is it always the right choice? Let’s review what Home Loan prepayment means, how it works, and what to consider before making this decision.
What is Home Loan Prepayment?
Prepayment of Home Loan refers to making a payment towards the principal loan amount before the scheduled EMI cycle. It can be done partially—through part-prepayment—or in full, which is commonly known as foreclosure.
Prepayment helps reduce the outstanding principal, resulting in potential interest savings or a shorter loan tenure, depending on how the repayment is adjusted.
What Does Prepayment of a Loan Mean?
Prepayment, be it in part or full, can be better explained as:
- Part-prepayment means paying a lump sum amount over and above your regular EMIs, directed towards the principal.
- Foreclosure refers to repaying the entire outstanding loan balance in one go, thus closing the loan account before the original tenure ends.
These are optional financial strategies borrowers may consider, depending on their long-term goals and cash flow.
How Does Home Loan Prepayment Work?
When you make a prepayment:
- The additional amount is deducted from your principal
- As your principal reduces, the interest payable also reduces
- To accommodate this reduction in your interest payable, you can choose to either reduce the EMI amount or shorten your loan tenure
As a Home Loan borrower with Bajaj Housing Finance, you have the option to choose to impact your EMI or tenure at the time of making the prepayment through our Customer Portal or App.
Check How to Change Home Loan Tenure or EMI on Prepayment
How Are Prepayment Charges Calculated?
Prepayment charges vary depending on:
- Loan type: For floating-rate Home Loans availed by individuals, no prepayment charges apply.
- Borrower type: Charges may apply for fixed-rate loans or non-individual borrowers such as companies or HUFs.
Check current Home Loan prepayment rules and terms
Advantages of Home Loan Prepayment
- Interest savings: Lower principal means lower overall interest outgo.
- Greater control: Prepayment gives you flexibility in managing your loan repayment schedule.
- Financial efficiency: Freeing up future cash flows for other investment or savings goals.
- Improved credit profile: Lower outstanding debt can positively impact your creditworthiness.
Prepayment When You Have Multiple Loans
If you have other loans running alongside your Home Loan:
- Evaluate the interest rates on each loan
- Consider repaying high-interest unsecured loans (such as credit cards or personal loans) first
- Use surplus funds where they bring the most financial benefit over time
Prepaying your Home Loan should ideally be a part of a broader, goal-oriented financial plan.
Important Considerations Before Prepaying a Home Loan
- Emergency funds: Don’t compromise on liquidity for prepayment
- Tax implications: You may lose some tax benefits on principal and interest under Sections 80C and 24(b)
- Return on investment: Compare prepayment benefits with potential returns from investments
- Applicable charges: Always understand the charges applicable (in the case of non-individual borrowers)
To Prepay or Not to Prepay?
Prepayment can be a strategic financial move when aligned with your overall goals. Home Loans are a powerful financial tool that enables ownership and wealth creation. Thus, think of prepayment as a way to optimise your finances, reduce interest costs, and increase repayment efficiency—provided you’re in a comfortable position to do so.
Conclusion
Understanding what is a prepayment of loan and how it works equips you to make more informed decisions. Whether it’s through part-prepayment or foreclosure, using this option wisely can help you manage your Home Loan more effectively.
DISCLAIMER:
While care is taken to update the information, products, and services included in or available on our website and related platforms/websites, there may be inadvertent errors or delays in updating the information. The material contained in this website and on associated web pages, is for reference and general information purposes, and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Users should seek professional advice before acting on the basis of the information contained herein. Please take an informed decision with respect to any product or service after going through the relevant product/service document and applicable terms and conditions. Neither Bajaj Housing Finance Limited nor any of its agents/associates/affiliates shall be liable for any act or omission of the Users relying on the information contained on this website and on associated web pages. In case any inconsistencies are observed, please click on contact information.
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