Prepayment is a facility which allows you to repay your housing loan (in part or in full) before the completion of your loan tenure.
Before considering prepayment of your housing loan, you need to ensure that you have sufficient funds for medical exigencies and your financial goals such as marriage, travel abroad, etc. You should avoid being in a situation where you have overextended yourself to prepay your home loan and, as a result, are funds-strapped when you most need it.
Floating rate home loans do not attract any pre-closure/fore-closure charges from individuals.
In the case of combination rate home loans, prepayment charges may be levied by a lender if the loan is prepaid during the fixed tenure of the loan and such prepayment is made not from the individual’s own funds but from the amount received from another lender for the purpose of balance transfer/refinance. However, if you use your own funds to prepay your housing loan, no prepayment penalty is levied.
Housing loans are easier to service; the interest rate on home loans is generally lower than the rate of interest charged on personal or credit card loans. Therefore, if you want to reduce debt, you may consider prepaying high interest-bearing loans on priority as against housing loans which carry a lower rate of interest.
You are entitled to claim tax exemption on principal repayment and on interest paid on housing loans (at stipulated amounts and subject to conditions). Moreover, with the Government’s focus on ‘housing for all’, it is expected that the tax incentives on housing loans may increase over time. On full prepayment of your housing loan, you will no longer enjoy the aforesaid tax benefits; in case of part prepayments, you will get proportionately lower tax benefits.