Home Loan Prepayments & Part Payment: Charges, Benefits, Rules & How to Pay
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26 DECEMBER, 2022

All About Pre Payment & Part Payments in Home Loans

A home loan comes with a repayment tenure that mostly lasts for several years. The feeling of having a financial liability as huge as a home loan is understandably stressful for many people. If planned properly, the home loan will not impede the entire annual budget of the borrower, including unforeseen financial emergencies.

Here's how you can ease out of this loan repayment stress when you opt for pre-payment or part-payment of your home loan.

In the case of home loans, the borrower can reduce the impact of the home loan interest rate by making prepayment of home loan. This facility eases the impact of loan on your budget and helps you enjoy other home loan prepayment advantages. The option of pre-payment and part-payment enables the borrower to settle the loan before its tenure. The benefits of prepayment of home loan come with both options of prepayment. Whether you decide to prepay your loan or not, knowing what is part payment in home loan is important for any person who avails of a home loan. Read on to know home loan part prepayment rules and how part payment works in home loan

Full pre-payment

Just like the name states, full pre-payments involve paying off the entire home loan amount before time during the early period of tenure. With this option the borrowers pay the entire amount of the outstanding before the due date thereby reducing the cost of loan as the amount paid in interest would be lesser. The loan tenure ends with the payment as the borrower is no longer in debt. The borrower will however have to pay a pre payment fee.

Read similar Article: Best Affordable Places In India To Invest In Buying A Home

Part-payments

Paying partial sums of money in advance as a form prepayment of loan is what this option is all about. Sometimes, the borrower receives an influx of money via profit in business or salary bonuses and so on. In such scenarios, the borrower can take this opportunity to pay off the home loan in parts. Part payments also has home loan prepayment benefits as partial payments on the home loan bring down the principal amount along with reducing the EMIs and total interest on it. Now that you know what is part payment in home loan, read further to find out how it is beneficial for you as a borrower.

There is another option for you to pay off your loan before the tenure ends and it is called preclosure or foreclosure. It allows you to pay the entire outstanding amount in one installment. Home loan pre closure charges are not levied on home loans borrowed with floating interest rates. However, borrowers availing of loans with fixed rates must pay home loan pre closure charges. Some banks do not charge home loan pre closure charges. For the ones that do, it is anywhere between 2-4% of outstanding balance.

Why Is The Pre Payment Of Home Loan Beneficial?

There are numerous benefits of prepayment of home loan. It means paying off the amount of loan over and above regular EMIs ahead of time. Either full pre-payment or part-payments, many borrowers prefer to pre-pay the loan to reduce the substantial financial burden on them.

Pre-paying the loan decreases the outstanding principal amount, which in turn reduce the EMIs. Borrowers can take help of self-planning tools like home loan EMI calculator to check the EMIs on their home loan. Overall, home loan pre-payment is financially favourable to the borrower. Not to mention the reduced stress, bringing you peace of mind and being able to begin planning for your next goal. Enjoy these benefits of prepayment of home loan when you avail of home loans at Kotak Mahindra Bank.

Know About Pre Payment Charges & Fees

Housing loan prepayment reduces the tenure of the loan and therefore there is a fee applicable on the prepayment of home loan. Banks charge 0.5-3% on the outstanding loan amount as the home loan prepayment charges. It must be noted that home loan prepayment charges are applicable only in case of fixed rate and floating rates are exempted from it.

How Does Home Loan Prepayment Calculator Works

Home loan prepayment calculator helps you calculate home loan prepayment charges at the click of a few buttons. To find out the charges all you need to do is provide the details like the outstanding amount of loan, the loan tenor, and the interest rate. The home loan prepayment calculator instantly calculates the charges by processing this information and displays the amount on your screen.

Home Loan Prepayment Rules

Prepayment is certainly beneficial but there are some home loan part prepayment rules that borrowers must follow when they avail of this facility:

  • You must pay the part prepayment charges
  • You must be willing to pay 2 EMIs amount of money at once.
  • The amount you pay must be equal to or more than 2 months of EMI.

Effect on Credit Score

There are many home loan prepayment advantages but it does not affect the credit rating of the borrower at all. They do reduce the financial burden, which eventually leads to the borrower paying the home loan within the decided time.

On the other hand, home loan pre-payment does not immediately influence the credit rating of the individual. However, by pre-paying, the long-time effect on credit score is delightful as closing a loan account before the end of a tenure period, boosts the credit score of the individual. Whether or not you choose to prepay your loan, you are now aware of how part payment works in home loan.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.