When should you consider prepaying your home loan? MintGenie explains
₹50 lakh home loan at 9% interest for 15 years, stands to pay ₹43.4 lakh in interest if he sticks to the scheduled payments.
Also Read: Don't get tripped up! 8 common home loan myths debunked for savvy borrowers In Ankush's situation, he initially paid ₹4.5 lakh as interest in the 1st year. This amount gradually reduces to about ₹2 lakh by the 11th year of the loan period. Should Ankush stick to the regular payment schedule without adding any extra amounts, he'll end up paying a total of ₹43.4 lakh in interest, besides repaying the principal amount of the loan.
However, if Ankush decides to make additional payments of ₹5 lakh each during the 2nd, 3rd, and 4th years of his loan, he could achieve substantial savings. Specifically, Ankush would save ₹16.38 lakh in interest and could reduce his loan period by almost 3 years. Choosing to make these extra payments a bit later, between the 5th and 7th years, would still result in savings but to a lesser extent; Ankush would save ₹12.33 lakh in interest and see a similar reduction in his loan duration.
Making the same prepayments between the 8th and 10th years would lead to even smaller savings, at ₹8.28 lakh. Thus, the strategy suggests that making additional payments earlier in the loan tenure is more beneficial. The sooner, the better.
Also Read: Loan default: Struggling to repay your loan? Understand borrower's rights The government offers tax deductions on home loan interest (up to ₹2 lakh under Section 24) and principal repayment (up to ₹1.5 lakh under Section 80C).
