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Topic : What one should know about Home loans
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Is prepaying your home loan a good tactic?

Created by : Sonam Kapoor, Software Developer, IBM  | 11 09 2009 10:16:11 +0000
Industry : BankingFunctional Area : Home loans(Others)
Keywords : loans interest rates prepayment homeloan prepayment homeloans
Activity:  1058 views;  last activity : 01 18 2012 15:58:24 +0000

Owning a home is a dream of every one, A home which actually symbolizes a safe haven of security to retire to after a hard day's work and a place where you can be yourself. This cozy nest is not actually yours just yet, legally speaking if you took a home loan for the property.


http://www.homeloansunshinecoast.com.au/wp-content/uploads/2009/10/home-loan.jpg

There times when you feel really impatient about this one niggling factor? That you need to wait several more years to free your home from debt? Also, with floating interest rates in the past few years, one would have given a thought about closing your loan soon before it becomes a lifetime repayment habit of which one cannot escape from? I think there are many things to look out when one is prepaying the loan taken, and having not much of an Idea about prepayment of loans. So, I would like to ask users on the platform is prepaying your home loan a good tactic? Please share your views on this.

  
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Top Argument
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According to me the first thing you need to check with your bank is like, at what point in time during the loan tenure you can start prepayments for your loan. Second, you need to find out whether you can make part-prepayments. Then you need to figure out what is the percentage of the outstanding loan amount you will be prepaying as prepayment penalty charge. Most banks allow you to prepay up to a certain point without any penalty charge, so you need to ensure that your part-prepayments do not exceed this limit to avoid a prepayment penalty. If you do pay a prepayment charge keep in mind that the prepayment charge should be considerably less compared to the interest saved.
By Rashmi Chawla, Cust. Service Manager, Leading Bank  11 09 2009 10:39:42 +0000
 
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Prepaid of home loan depends upon several factors like-

Loan tenure

Your exposure amount

EMI Paid

Surplus Availability of cash

Your risk appetite

Market rate of interest and prepayment charges etc.

You have to consider all these factors before prepaying your loan. If banks don't charge fee for prepayment then you should look at the amount of cash you have to pay in order to foreclose the loan.

If you have surplus cash then you should see your risk appetite, like your job security/business income and your risk taking habit. If you are a person who is in their late 20’s or mid 30’s with good earning income with certain % of job security should compare interest payment on balance loan and interest earn on the same amount if you invest it in diversified portfolio.

I think one should take decision of prepayment after considering all the above mentioned points, not just prepayment charges.
By Deepak Agrawal, Consultant, Independent Consultant  11 09 2009 11:28:45 +0000
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Prepaying a loan is always good as the debt is off faster,however one needs to see if there are charges for prepayment also HL is a tax benefit factor attached to it too
By Hally Vishwanath, Director, Eugenics Management Services  | 01 18 2012 15:58:24 +0000
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If you prepay a loan then you are out of debt faster than the normal time span

Further your credit rating also encreases and in future if you take a loan then banks have a confidence in you


By Nikhil , Senior Manager, Insurance  | 07 02 2010 10:53:38 +0000
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The prepayment of a home loan or any other loans is highly advisable since you save on interest on the loan. Also, one should consider the prepayment penalty charges of the concerned lender before making a decision to prepay.
By John D Nevin, Manager - Finance & Administration,StreetEdge Investments  | 01 21 2010 16:32:24 +0000
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The factor of prepaying the home loan will only arise when a person lays his hands on surplus cash,be it savings schemes, or a cash bonus or he comes in to money in a bonanza like a will, or a windfall like a lottery or insurance scheme which has matured. As long there is no penalty levied by the bank, it makes good sense, to go in for prepayment, either partially or completely. The interest burden lightens

 
By dr ravindranath, consultant , Indus associates  | 11 18 2009 11:33:52 +0000
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People, I have a home loan, and I came to know about the prepayment of loans from one of my friend but was not completely sure of what she had to tell me about this. So, people Is prepaying your home loan a good tactic? If yes then what are reason behind it and if No then what are the reasons, please share your views people, as it will help me in understanding my home loan in a much better manner.
By Sonam Kapoor, Software Developer, IBM  | 11 09 2009 10:18:23 +0000
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Home loan is the cheepest finance available in the financial market, keeping this in mind, I always suggest to avail home loan as much as possible, if you have investment know how, you yourselves can invest the surplus fuds available to the various products available in the financial market which will fetch you better return when compared to your cost in home loan. For the purpose of interest rete on home loan if you have option better to opt for floating rate, then you are along with the market risk.

This is a generally seen tendancy and well accepted among the public , any repayment of home loan principal or its interest will have income tax benifit too, if the borrower is an assessee under the Income Tax Act.
By RAMANATHA PRABHU N, Chartered Accountant  | 11 14 2009 06:04:00 +0000
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good analysis
By Gautam Shah, Audit Manager, Auditing Firm  | 11 11 2009 14:55:18 +0000
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It is individualistic. Depends on terms of preclosure too. May be a part payment upto 90% or 75% allowed without prepayment charges is a good option, if you are sure to get credit if needed for other purposes.

But with prepayment charges, it is not worth it. Also, it depends on the rate at which loan was borrowed. If rate of loan is b/w8 to 11%, surplus money could be used/invested in alternative returns and earn opportunity income over that rate.

regards
By vlv , Freelancer, Freelancer  | 11 09 2009 13:32:00 +0000
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