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How & When to Part Pay Your Home Loan?

Highlights

  • Paying more interest on your home loan? Think of part payment that can reduce the loan burden
  • A planned part payment strategy can save you lakhs of money

A 20-year home loan of ₹50 lakh at an interest rate of 8.50% per annum will mean interest obligations of ₹54,13,879, more than the principal amount. But you can reduce the interest payment by making a part payment of say ₹1 lakh after the 5th, 10th and 15th year. As per our calculations, the interest liability will come down to ₹52,64,743. It can reduce further if you lessen the loan tenure while making a part payment. But the key is to time your part payment better. To ensure it happens, you need to evaluate the option carefully taking each and every detail into consideration. The article will help you do so. Let’s read and employ the home loan part payment strategy perfectly.

When is the Right Time to Part Pay Your Home Loan?

Home loans come with a range of benefits and make the borrowers continue with the normal Equated Monthly Installment (EMI) routine. The benefit is that the loan comes at a lower rate of interest (8%-9%) compared to double digits of other loans. Additionally, there are tax benefits on the principal and interest portion of the EMI. Tax benefits are capped to ₹1.5 lakh and ₹2 lakh on principal and interest repayments, respectively, in a financial year. These benefits make your home loan journey more exciting by reducing your taxable income and even zero in some cases.

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But that is only one side of the story. The other one will give you a better idea of where you exactly stand. For that, you must look at the repayment schedule thoroughly. One way is to request the lender to issue you a home loan amortization schedule, which shows the payment of principal and interest you have made over a period of time. If you’re about to buy a home, you can use the Home Loan EMI Calculator and get a brief idea of the likely repayment scenario. Of course, it will change with the change in the interest rate over time.

If it’s found that interest and principal repayments are way too high of the tax benefit caps, you should pay off a relatively higher chunk of the outstanding balance and ease the repayment burden.

But, How Will You Part Pay?

Making part payments is not as easy as it may sound, particularly if you lack discipline in your financial life. So, if you are eyeing a part payment corpus over the desired time, you need to spend wisely. If possible, curb on spends a bit more than required so that you could make up for the failure of Plan A with Plan B, Plan C & alike. Save in a disciplined manner and generate enough to reduce the outstanding balance systematically and so do the interest burden. With regular part payments, you will close your loan much faster and have more years than others to plan your life from thereon.

Which are the Tools to Generate Your Home Loan Part Payment Sum?

Well, there are multiple tools by which you can generate the desired sum. One is by investing in instruments that can accumulate what you want at a certain point of time. Have an idea of your risk appetite before choosing the type of investment. Also, you can save extra every month and pay an extra EMI every year. If you have made an investment already and that’s not fetching great returns, it won’t be bad to liquidate the same to part pay.

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Can You Make Part Payment Anytime?

Well, this will depend mostly on your lender. While some lenders allow part payments from the very beginning, others permit after the loan completes a particular period. The part payment amount is, however, capped to 3 times the EMI. The good thing is that you won’t have to pay any fee.

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  • Home Loan Interest Rates November 2020
    Axis Bank7.75% - 8.55%
    Bank of Baroda6.85% - 8.25%
    Citibank7.13% - 8.03%
    HDFC6.90% - 7.65%
    ICICI Bank6.90% - 8.05%
    Indiabulls Housing Finance Limited8.99%
    Kotak Bank6.75% - 8.45%
    LIC Housing6.90% - 7.90%
    Piramal Capital & Housing Finance9.65%
    PNB Housing Finance7.50% - 9.20%
    Reliance Home Finance8.75% - 14.00%
    State Bank of India/SBI6.95% - 7.60%
    Tata Capital7.50% - 8.75%