Half of India does not know whether it is right to repay the home loan before time or not. Know the bank's advice before making the decision

Home loan is a long term loan. Usually people take home loan for 15, 20, 25 or 30 years. In such a situation, it becomes a responsibility to pay EMI every month for a long time. When a large amount is deducted from the account as EMI, it becomes a big problem. In such a situation, every borrower thinks about getting rid of this EMI hassle and the way to do this is Home Loan Prepayment. Through the prepayment facility, you get the convenience of repaying your loan before the loan period is over. But the decision of prepayment can get you rid of EMI, but how will you know whether it is beneficial for you or not? Here know the 6 things that must be considered before taking a prepayment decision. This advice has been given by HDFC Bank itself.

Before deciding to prepay your housing loan, you should make sure that you have sufficient funds to meet other household needs such as marriage, foreign travel, emergency etc. You should avoid getting into a situation where you put too much burden on yourself to prepay your home loan and end up short of funds when the need arises. If you prepay from your savings, you will have to borrow from elsewhere to meet these needs. In such a situation, you may make things even more difficult for yourself.

The cost of prepayment should also be compared with the returns from investments. If you have the opportunity to earn more returns than the home loan interest, it will be better to invest the surplus funds instead of using them to prepay the home loan. Since a home loan is a long-term loan, you can invest in equities for a longer period to get better returns. The longer you invest in equities, the lower the risk and the better the chances of getting returns.

At which stage of the home loan you are making the prepayment matters a lot. In the initial stage of the home loan, the interest component in the EMI is the highest. In such a situation, if you make the prepayment at the initial stage of the loan, then interest worth lakhs of rupees will be saved. This will give you double benefit. Your EMI will be reduced, and the amount of lakhs going into interest will be saved. But prepayment of loans in the mid-to-late stage cannot give you the full benefit of saving on interest. In such a situation, it is wise to invest the surplus funds.

The interest rate on home loans is usually lower than the interest rate charged on other loans like personal loans or credit card loans, so, if you have more than one loan and want to reduce your debt, it is better to repay the loans with higher interest first.

You are entitled to claim tax exemption of up to ₹1.50 lakh every financial year on repayment of the principal amount of the housing loan. You can also avail tax exemption on the interest paid on housing loan. Apart from this, tax incentives on housing loans may increase in the coming time due to the government's focus on 'Housing for All'. If you finish your housing loan through prepayment, you will stop getting these tax benefits; tax benefits will be reduced if you make part prepayment.

Consider the decision to prepay your home loan only after understanding the cost of prepayment. Usually banks do not charge any prepayment fee on adjustable rate home loans, but prepayment fee may be charged on fixed rate home loans. Before making loan prepayment, know about all the terms and conditions from your lender and then decide on loan prepayment. (Note- This information has been taken from the website of HDFC Bank.)