Buying a new house is an absolute dream for most people. It takes a lot of time, effort and most importantly money to buy a new house. Taking a home loan is the easiest and quickest way to fund your real estate dreams. However, what do you do when you eventually have enough money to pay it off before the tenure period? This is when a home loan pre-closure comes to play. Read on to know more.
What is a Home Loan Pre-Closure?
As the name suggests, a home loan pre-closure can be defined as the process when an individual repays the set loan amount before the tenure of the loan comes to an end. Most borrowers opt for a home loan pre-closure either to save up on high interest rates or refinance the existing home loan with a plan of lower interest offered by other banks. However, though a home loan pre-closure waves off the pending interest amount that is due during the tenure, there are pre-closing charges that need to be taken into account. Read on for further pointers to keep in mind while opting for a home loan pre-closure.
Things to keep in mind while pre-closing a home loan
Opt for the Right home Loan
Although this is applicable to the early stages of obtaining a home loan, doing a lot of research before choosing the right home loan is of utmost importance especially if you decide to pre-close your loan before its original tenure. Check with various banks all over the country before making a final decision and also pick a scheme that allows you the opportunity to pre-close your loan with minimal charges.
Keep your EMIs steady
Pay a steady amount of EMI’s per month in order for the loan prepayment to work to your advantage. Once you made up your mind about prepayment of your home loan, you are given two options to choose from which are – either reducing the EMI or reducing the tenure of the loan. You can decide on which option you would like to take up based on the home loan pre-closure charges that are applicable.
Carry all the appropriate paperwork
Once you have thoroughly considered every detail involved in pre-closure of a home loan, make sure you carry all the important and significant documents such as a driver’s license or a PAN card along with your cheque book as it is important, if the process of the home loan pre-closure is to get started.
Calculate the benefits beforehand
Take your time and don’t rush into any quick decisions while prepaying a home loan. It is recommended to ideally work out the returns that can be made from that same amount if you had invested it in a different place. Accordingly, you can compare that amount to the interest amount of the existing home loan.
Avoid prepaying the entire loan amount
A very common mistake a home loan seeker does is try to prepay the loan amount in full. Although this method is not the wrong method, one should consider prepaying a portion of the loan as it brings down your total EMI’s while reducing the interest you pay.
Don’t overlook the tax benefits of the loan
Getting a home can also provide you with several tax benefits that you would not want to miss out on. Some of the tax benefits include a tax deduction on the principal amount of your home loan. For eg: When paying back the main amount of your home loan, one can benefit from a tax deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
Collect a proof of prepayment
Get proof of your prepayment as this acknowledgement will be necessary for the future. This document of acknowledgement will also include the outstanding amount after you have made the prepayment of your loan. Furthermore, the proof of prepayment will have the remaining tenure of your home loan. This should ideally be authorised with a signature, stamp or seal from the bank for authentication. Be extremely attentive before selecting a home loan, especially if you are aiming to prepay your home loan at a much earlier stage. It is also a good idea to budget everything to keep a track of all your expenses so that you don’t go overboard and also carry the appropriate paperwork needed to start the process. Looking for the right property to invest in? Head over to Lancor for the best properties in the top localities of Chennai.