A home loan is the best option to buy a house when you don’t have sufficient funds to invest. Banks provide loans at a lower interest rate by checking the creditworthiness of borrowers. With easy installments, one can repay the loan quickly. But what if you manage to have sufficient funds in your pocket? It would be better if you repay your home loan amount. This will surely help you manage your monthly expenses. So, the early payment of a debt is prepayment. A lump-sum payment before the due date of the installment payment. Because you pay a portion of your dues ahead of schedule, home loan prepayment reduces EMI or tenure. Multiple banks have Loan Prepayment that you can explore below in this article.
Benefits of Prepayment of a Home Loan
You now have a good understanding of what a home loan prepayment is. What effect does it have on your EMI and interest payments, as well as the whole process? Since home loan prepayment reduces EMI or tenure. You may have a look at some of the benefits of prepaying your home loan. You should have a look at them!
- Prepayment of home loans has no charges in most of the major banks. So you don’t have to pay extra money while the Prepayment of a Home Loan.
- With the help of the EMI calculator, you can ask the lender to reduce the EMI of the home loan also the tenure.
- The prepayment of home loans also helps improve your CIBIL Score.
- Prepaying your home loan in the early years of its term is always a good idea. Because you’ll be paying much less interest on the lowered principal amount after prepaying some of it, you’ll save a lot of money. As a result, your EMI amount will be reduced.
Prepayment of Home Loans from Different Banks
Multiple banking institutes are offering a borrower prepayment option. Home loan prepayment will reduce your EMI and tenure as well. Part prepayment of home loan is paying off a sum of the amount before completion of the tenure. This also helps you to reduce the outstanding amount that you are eligible to pay within the tenure. You get either of the two options, one is to reduce the EMI and keep the same tenure or reduce your tenure and keep the EMIs fixed. Since it is beneficial for the borrower as it reduces the financial pressure so one must use the home loan prepayment.
You must check the top banks in India that give you the option to make a part payment of your home loan during the tenure and eliminate some financial burden.
HDFC Home Loan Prepayment Process
Being one of the top home loan providers of the country, HDFC Limited provides a seamless prepayment facility to both individuals and non-individuals on their home loan taken at both floating and a fixed rate of interest. You can have more knowledge about it below.
Floating Rates Home Loans Prepayment
- If you are an individual who has opted for a home loan on the floating rate of interest and wants to repay the loan amount (partial or full) before the tenure, you don’t need to pay prepayment charges for the same.
Non-individual Borrowers such as Companies, Sole Proprietorship Concerns/Firms, or Hindu Undivided Families will need to pay prepayment charges as follows.
|If the Prepayment is Made||Terms and Conditions|
|Within 6 Months||The Non-Individual has to pay a fee of 2% of the prepaid amount plus GST|
|Between 6 Months and 36 Months||- You are allowed to pay only 25% of the opening principal amount every year.|
- 2% of the Prepaid Amount will be charged on 25%.
|After 36 Months||No charges will be levied if the non-individual makes the prepayment after 36 months.|
Fixed Rate Home Loans Prepayment
HDFC Home loan prepayment is also available for the home loan on the fixed rate of interest that means your interest rates will be fixed for your overall tenure. Conditions for the part prepayment of home loan charge changes in the Fixed Interest Home Loan are below.
- For individuals who want to repay the loan amount (partial or full) from refinancing (loan from Bank/NBFC/HFC) then the prepayment charges will be 2% of the paid amount plus applicable GST charges.
Prepayment charges for Non-individual Borrowers such as Companies, Sole Proprietorship Concerns/Firms, or Hindu Undivided Families are as follows.
|If the part Payment is Made||Terms and Conditions|
|Before 6 Months||A fee of 2% of the prepaid amount plus GST will be charged|
|After 6 Months and before 36 Months||- One can pay only 25% of the opening principal amount every year.|
- A fee of 2% of the Prepaid Amount is chargeable on 25%.
|After 36 Months||No charges will be levied if the prepayment is made after 36 months.|
ICICI Bank Home Loan Prepayment Process
ICICI Bank is also one of those top private banks of India that provides a seamless home loan facility to customers available at affordable interest rates ranging from 6.70% – 7.55% per annum. If you are having an ICICI Home Loan and want to prepay some amount before the tenure then you should know charges:-
- You will not have to pay any charges if your home loan is at a floating interest rate.
- 2% of the principal outstanding amount plus applicable GST will be charged if the home loan is at a fixed interest rate.
Part Prepayment of Home Loan Charges for LIC HFL Home Loan
- No charge shall be applicable under the floating rate period.
- A Prepayment charge of 2% + Tax is chargeable in the case of a non-individual borrower even if it is a co-borrower.
- The prepayment charges will be NIL if prepayment is made from their own sources otherwise an individual will have to pay a charge of 2% + GST of the home loan prepayment amount.
- You will have to submit all the necessary documents as evidence of the source of funds.
SBI Home Loan Part Prepayment Rules
With the freedom of choosing a suitable home loan scheme from several schemes, the State Bank of India (SBI) is the leading public sector bank of India. Some of the reasons due to which so many people opt for this are the affordable interest rates starting from 6.70% per annum, flexible tenure, and easy repayment methods.
- Interest on the loan will be levied at the current fixed rate of interest on daily declining balances.
- SBI has the authority to set the rate of interest computation.
- SBI may, in its sole discretion, adjust the rate of interest appropriately and prospectively.
- The borrower may request SBI to discontinue the loan if he is not satisfied with the amended interest rate.
- The borrower must repay the loan and any other amounts due to SBI in full payment as described in the Pre-closure agreement.
- No penalties are charged on prepaying the loan amount before the fixed tenure.
- Any individual who is currently paying the SBI home loan can make the part or full pre-payment according to capacity.
- SBI charges a fee on the pre-payment of a Home Loan if it is on a floating rate of interest.
- No charges shall be applicable if the repayment is made from the own source without borrowing in case of a fixed rate of interest.
Bank of Baroda Home Loan Prepayment Process
Bank of Baroda has emerged as one of the top five public banks of India. Everybody wants to have lower interest rates on their home loan starting from 6.5% per annum.
- Borrowers can opt for a part prepayment of the loan facility without paying any extra charges.
- Any borrower can pay in part or full payment of the loan amount before the fixed tenure if the loan is taken on floating interest rates.
Tata Capital Home Loan Repayment Process
Tata Capital is also one of the finest leaders of our country that provides home loans to borrowers. Its affordable interest rates range from 6.50 – 12% per annum. The prepayment rules of this loan are as follows:-
- If at any point in your tenure, you want to prepay your home loan either in part or full, you can do it without paying any penalty charges on it.
- The only condition that you need to adhere to is that you must pay the amount from your funds and not from other means else you will need to pay prepayment charges for it.
Home Loan Prepayment EMI Calculator
Various banks and fintech websites provide a home loan EMI calculator with a prepayment option. Hence, you’ll need to fill in information like the loan amount, repayment term, interest rate, and payment amount. Then after mentioning the details, you can view the new EMI, the EMI savings, the percentage of the saving EMI, and the new tenure.
Using the house loan prepayment calculator requires the following information:
- The Principal amount is the funds you borrow from banks as a loan.
- An outstanding loan amount is an amount you owe the lender.
- The number of pending EMIs determines the balance tenure.
- The prepayment amount is a portion of the outstanding loan amount that you intend to pay.
Hence, three times the EMI is the minimum part prepayment of the home loan amount.
So, let’s understand how the part prepayment of a loan EMI calculator operates. To get this, use the following table:
EMI of Home Loan Before the Part Prepayment of Home Loan
|Principal Amount||Rs. 50 Lacs|
|Rate of Interest||8%|
EMI of the Home Loan After the Prepayment of Amount Rs. 25 Lacs
|Principal Amount of Home Loan||Rs. 50 Lacs - 25 Lacs|
(Rs. 25 Lacs Balance)
|Reduce in Principal amount||25 Lacs (50%)|
|Term Period||240 months||Reduction in tenure||77 Months|
|Rate of Interest||8%||Remaining Tenure||163 Months|
|New EMI||Rs. 20911||Reduction in EMI||Reduction in EMI|
Rs. 20911 (50%)
Steps to Use Home Loan Prepayment Calculator
Hence, to utilize the home loan prepayment calculator, simply follow these easy steps:
- 1st step – Go to the ‘Home Loan’ page of the bank by clicking the EMI prepayment calculator.’
- 2nd step – Fill in the existing loan principal amount.
- 3rd step – Also, you must supply the current interest rate on your existing home loan.
- 4th step – Enter the payback period.
- 5th step – Enter the prepayment amount.
Home Loan Prepayment Set Guideline by RBI
According to the Reserve Bank of India, banks must observe specific regulations for part prepayment of home loans. Banks have likewise adhered to the same set of guidelines.
Prepayment of House Loan Permit Prepayment Costs in the Following Situations:
- The interest rate on a Dual Rate Home Loan is permanent for the first several years, then it switches to a variable rate. Under this method, banks might charge a prepayment penalty.
- If you borrow money to repay the loan from another bank. Banks may charge a prepayment fee.
- Moreover, if you take out a house loan from a bank with a fixed interest rate, the loan agreement may include a prepayment penalty.
- Also, banks can charge non-individual borrowers a prepayment penalty.
Prepayment of a House Loan Does Not Permit Prepayment Costs in the Following Situations:
- On a Dual Rate Home Loan with a Variable Interest Rate, there are no prepayment penalties. But, if you make a prepayment after the Dual Rate Home Loan has been switched to a floating interest rate.
- Moreover, If you do the prepayment with your own money and do not borrow from an HFC bank, you will not be charged a prepayment penalty.
- Also, according to RBI rules, there are no-prepayment charges if an individual takes out a home loan with a variable interest rate.