Estimated reading time: 9 minutes
Save big by cutting down your loan term! LIC Housing Finance’s Home Loan Prepayment Calculator helps you take control and make smart, money-saving decisions.
Planning to prepay your LIC Home Loan?
Let us help you through the process.
How to Prepay Your LIC Home Loan?
Learn how to prepay your LIC Home Loan here:
- Check Your Finances:
Ensure you have enough savings for other expenses and emergencies before deciding to prepay.
- Log into the Customer Portal
Visit the LIC HFL customer portal and log in with your credentials. If you don’t have an account yet, you can register using your loan account number and other details
- Select Prepayment Option
Once logged in, navigate to the loan section and choose whether to make a partial or full prepayment
- Make the payment
After selecting the loan account and amount, proceed to the payment gateway to complete the prepayment through net banking, UPI, or other available methods
- Verify Loan Details
After the payment, you can check your updated loan balance and new EMI schedule online through the portal
What is Prepayment?
Home loan prepayment refers to the process of paying an additional amount towards your loan principal before it’s due. This action can significantly reduce the outstanding principal, leading to lower interest payments over the loan tenure.
Prepayment can be a strategic move to become debt-free sooner and save money that would otherwise go towards interest payments.
The Role of LIC HFL’s Home Loan Prepayment Calculator
LIC HFL’s Home Loan Prepayment Calculator is an online tool designed to help borrowers assess the impact of prepaying their home loans. By inputting specific loan details and potential prepayment amounts, borrowers can visualize how prepayments affect their loan tenure and total interest payable.
Key Features and Benefits
- User friendly
- Completely FREE
- Instant results
- Customised inputs
- Detailed amortization schedule
How Credit Dharma’s LIC Home Loan Prepayment Calculator Works
Here’s a simplified explanation of how the LIC HFL home loan prepayment calculator from Credit Dharma operates, using a practical example:
A borrower took a home loan from LIC HFC. Here’s a breakdown of the loan amount:
1. Initial Loan Details
Category | Amount |
---|---|
Principal | Rs. 1 Crore |
Rate of Interest | 9.00% p.a. |
Tenure | 20 years |
No. of EMIs Paid | 12 |
Prepayment Amount | Rs. 2,00,000 |
2. Loan EMI Calculation
The EMI can be calculated using the formula:
EMI = P x R x (1 + r)^n / ((1 + r)^n – 1)
Where:
- P= Principal loan amount = ₹1,00,00,000
- R= Monthly interest rate = 9% annual rate / 12 months = 0.75% = 0.0075
- N = Loan tenure in months = 20 years × 12 = 240 months
Plugging in the values:
EMI = [1,00,00,000×0.0075×(1+0.0075)^240]/ [(1+0.0075)^240 – 1]
Solving this gives an EMI of approximately ₹89,973.
3. Outstanding Principal After 12 EMIs
After paying 12 EMIs, the outstanding principal reduces due to the principal component in each EMI.
- Total EMIs Paid: 12
- Outstanding Principal: Calculated using an amortization schedule.
Outstanding Principal after 12 EMIs: ₹97,96,352
4. Impact of Prepayment
- Prepayment Amount: ₹2,00,000
- Timing of Prepayment: After 12 EMIs have been paid
New Outstanding Principal = Outstanding Principal – Prepayment Amount
New Outstanding Principal = 97,96,352−2,00,000 = ₹95,96,352
5. Effect on Interest and Tenure
Without Prepayment
- Total Interest Payable over 20 years: ₹1,15,93,423
- Remaining Loan Tenure: 228 months (19 years)
With Prepayment
- Total Interest Payable: ₹1,07,45,692
- New Loan Tenure: 216 months (18 years)
Savings Due to Prepayment
Aspect | Amount |
---|---|
Interest Saved | ₹1,15,93,423 – ₹1,07,45,692 = ₹8,47,731 |
Tenure Reduction | 228 months – 216 months = 12 months (1 year) |
6. Remaining EMIs
Before Prepayment
- Total Loan Tenure: 240 months
- EMIs Paid: 12
- EMIs Remaining: 240 – 12 = 228 EMIs
After Prepayment
- New EMIs Remaining: 216 EMIs
Reduction in EMIs: 228 – 216 = 12 EMIs
7. Summary of Calculations
Aspect | Before Prepayment | After Prepayment | Difference |
---|---|---|---|
Outstanding Principal | ₹97,96,352 | ₹95,96,352 | -₹2,00,000 |
Total Interest Payable | ₹1,15,93,423 | ₹1,07,45,692 | -₹8,47,731 |
Remaining Loan Tenure | 228 months (19 years) | 216 months (18 years) | -12 months (1 year) |
Remaining EMIs | 228 | 216 | -12 EMIs |
Methods of Prepaying Your Home Loan
Method | Payment Frequency | Extra Payment Per Year | Impact on the Loan |
---|---|---|---|
Bi Weekly | Every 2 weeks | Equivalent to 1 extra EMI | Gradual principal reduction Moderate interest savings Reduced tenure |
Extra Annual Payment | Once a year | Varies based on amount | Significant principal reduction Substantial interest savings Reduced tenure |
Lump-Sum Payments | One-time or occasional | Large one-time payment | Immediate principal reduction Maximum interest savings Potential to reduce EMI or tenure |
Factors to Consider Before Prepaying a LIC HFL Home Loan
While prepaying home loans seems lucrative, borrowers must evaluate certain aspects beforehand:
Considerations Before Prepaying Your Home Loan
- Check if your lender charges fees for early repayment, especially for fixed-rate loans.
- Ensure you have sufficient savings (3-6 months of expenses) before using surplus funds to prepay.
- Compare your loan interest rate with potential returns from investments; investing may yield higher returns.
- Prepayment reduces interest paid, possibly lowering tax deductions.
- Prioritize paying off higher-interest debts like credit cards or personal loans first.
- Consider upcoming expenses (education, medical, etc.) that require accessible funds.
- Don’t compromise long-term savings plans.
- Decide whether to reduce your loan tenure or lower your monthly EMI for better cash flow.
- Assess potential gains from alternative uses of the funds, such as investments or business opportunities.
- Factor in how inflation may decrease the real value of your loan over time.
- Explore if refinancing at a lower interest rate is more beneficial than prepayment.
LIC HFL Foreclosure Charges
Foreclosure charges, also known as prepayment penalties, are fees that lenders may charge when a borrower decides to pay off their home loan before the end of its tenure. These charges compensate the lender for the loss of expected interest income due to early repayment.
Types of Home Loans and Foreclosure Charges
Floating Rate Loans:
Individual Borrowers (Residential Loans)
- Foreclosure Charges: No Charges
- Details: As per the Reserve Bank of India (RBI) guidelines, lenders, including LIC Housing Finance Limited (LIC HFL), cannot levy foreclosure penalties on floating rate home loans taken by individual borrowers.
- Implication: You can prepay or foreclose your floating rate home loan without incurring any penalties.
- Details: As per the Reserve Bank of India (RBI) guidelines, lenders, including LIC Housing Finance Limited (LIC HFL), cannot levy foreclosure penalties on floating rate home loans taken by individual borrowers.
Fixed Rate Loans:
Individual Borrowers
- Prepayment from Own Sources
- Foreclosure Charges: Typically No Charges
- Details: If you prepay using your own funds (e.g., savings, bonuses, inheritances), many lenders do not charge a prepayment penalty.
- Details: If you prepay using your own funds (e.g., savings, bonuses, inheritances), many lenders do not charge a prepayment penalty.
- Foreclosure Charges: Typically No Charges
- Prepayment through Refinance or External Borrowing
- Foreclosure Charges: May Apply
- Details: If the prepayment is made using funds borrowed from another financial institution or by transferring the loan to another lender, some lenders may impose a foreclosure charge.
- Details: If the prepayment is made using funds borrowed from another financial institution or by transferring the loan to another lender, some lenders may impose a foreclosure charge.
- Foreclosure Charges: May Apply
Non-Individual Borrowers (e.g., Companies, Trusts)
- Loan Types: Both Fixed and Floating Rate Loans
- Foreclosure Charges: May Apply
- Details: Non-individual borrowers may be subject to foreclosure charges on both fixed and floating rate loans, depending on the lender’s policies.
Typical Foreclosure Charges
Foreclosure charges can vary but generally fall within certain ranges:
- Charge Rate: 1% to 3% of the outstanding principal amount or the amount being prepaid.
- Sliding Scale: Some lenders apply a sliding scale where the penalty rate decreases as the loan matures.
Is Overdraft a Better Option than Prepayment for You?
An overdraft facility on a home loan account allows depositing surplus funds, which reduces the outstanding principal and the interest charged. This facility is beneficial because it provides liquidity—surplus funds can be withdrawn at any time.
While it helps save on interest costs, it’s important to note that overdraft facilities might come with higher interest rates and additional fees compared to standard loans.
Prepayment vs Overdraft: What Should You Opt For?
Option | Features | Benefits | Good For |
---|---|---|---|
Prepayment | Directly reduces principal Saves on interest Potentially shortens loan tenure | Long-term interest savings Accelerates debt freedom | Borrowers seeking long-term savings and early debt clearance |
Overdraft | Allows deposit and withdrawal of surplus funds Interest calculated on reduced principal | Flexibility in fund access Saves interest while funds are deposited | Borrowers needing liquidity and flexibility with continued savings |
Considerations
- Financial Stability: Overdraft might be more suitable if you expect fluctuating income or expenses.
- Interest Rates: Compare the potential interest savings against the higher costs associated with an overdraft facility.
- Financial Goals: Prepayment might be better if your goal is to reduce debt quickly.
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Conclusion
Prepaying home loans substantially reduces interest costs over long tenures. LIC HFL offers exceptional prepayment options for borrowers to determine potential savings on their housing loans.
Looking for expert guidance on your home loan journey? Choose Credit Dharma for all your home loan needs, from application to repayment. We’re here to assist you in making informed decisions, optimizing prepayment amounts, and strategizing for maximum savings.
Frequently Asked Questions
LIC Housing Finance generally allows any amount of prepayment without charges on floating rate home loans. For fixed rate loans, conditions may apply, so it’s best to refer to your loan agreement or contact LIC directly.
The reduction in EMI after a prepayment depends on whether you choose to lower the EMI or shorten the loan tenure. If you opt to decrease the EMI, the amount of reduction will depend on the remaining tenure and the prepayment amount.
Most lenders allow significant prepayments for floating rate home loans without any charges. However, fixed rate loans might have restrictions or penalties. The exact terms can vary, so checking your specific loan agreement is advisable.
To close a home loan early with LIC, you can make a full prepayment of the outstanding balance. It’s recommended to notify LIC in advance, prepare the necessary funds, and follow up with them to complete any required formalities to ensure the loan is closed properly.
Deciding between prepayment or continuing with a home loan depends on your financial situation. Prepayment can save on interest costs but may deplete your cash reserves. Consider your financial goals and consult with a financial advisor to make an informed decision.