Owning a home holds a lot of significance for many people. However, the cost of purchasing a house often necessitates taking a home loan.
Most homeowners find themselves saddled with considerable debt for years. Therefore, many yearn to repay their housing loan quickly. SBI offers a prepayment facility that enables borrowers to repay their home loan ahead of schedule. This blog elaborates on how SBI prepayment calculator can help reduce overall interest costs.
Introduction to Home Loan Prepayment
A home loan usually has a long tenure spanning 15-30 years. Prepayment allows borrowers to pay back some part of the loan amount before the tenure ends. As a result, the subsequent EMIs and outstanding loan amounts decline. In turn, the total interest paid over the loan tenure also reduces significantly. SBI offers both partial and full prepayment options. Customers can use the SBI prepayment calculator to estimate potential savings from prepaying their home loans.
Benefits of Prepaying Your Housing Loans
Prepaying home loans using surplus funds carries multiple benefits:
- Lower interest outflow: Prepaying loans cuts down interest costs as outstanding principal declines faster.
- Shorter tenure: With every prepayment, loan tenure reduces, enabling faster debt freedom.
- Lower EMIs: Alternatively, borrowers can also opt to reduce EMIs while keeping tenure constant.
- Savings on total costs: Overall savings on a home loan can amount to several lakhs of rupees depending on the loan amount and tenure.
Factors to Consider Before Prepaying a Home Loan
While prepaying home loans seems lucrative, borrowers must evaluate certain aspects beforehand:
- Emergency funds: Ensure sufficient savings for contingencies before allocating funds for prepayment.
- Investment returns: Compare prevailing fixed deposit or equity returns versus home loan interest rates. Returns above 10-11% may outweigh prepayment.
- Other loans: Clear off expensive debt like personal loans and credit cards first before considering home loan prepayment.
- Prepayment timing: Optimal savings accrue from prepaying in early tenure when interest components in EMIs are maximum.
SBI Home Loan Prepayment Calculator
Navigating the complexities of home loan management can be a daunting task. This is where Credit Dharma Home Loan Prepayment Calculator becomes an indispensable tool. It helps homeowners understand how prepayment can impact their loan’s tenure and the total interest payable. This blog will delve into the nuances of this calculator, ensuring you have all the information needed to make informed decisions.
Key features include:
- User-friendly interface: The calculator has a simple layout allowing fast calculations.
- Personalized inputs: Borrowers can input their exact home loan details to get customized savings estimate.
- Flexible options: Users can modify loan amount, tenure, interest rate as required to match their loan terms.
- Detailed output: The calculator shows detailed breakup of regular EMIs, number of EMIs paid, pending EMIs, interest saved based on prepayment amount entered.
How Credit Dharma’s Home Loan Prepayment Calculator Works
Let’s illustrate the use of this calculator with an example. A Borrower had taken a home loan of Rs.1 Crore for 20 years tenure at 9% interest rate p.a. the user has already paid 12 EMI’s. Now the user wants to prepay a lumpsum amount of 2 Lakh rupees as a prepayment.
Loan Amount: Rs.1 Crore
Tenure: 20 years
Interest Rate: 9% p.a.
Instalments Passed: 12
Prepayment Amount: Rs.2 lakh
The calculator will show you the reduced EMI or the new shortened tenure, for this case the Calculator will show you
Total Interest Saved On Loan: Rs.8,47,731
EMI Tenure is reduced by: 12 months
Understanding Prepayment Charges on SBI Home Loans
According to RBI guidelines, certain conditions allow banks and Housing Finance Companies (HFCs) to impose a prepayment penalty on home loans:
- Non-Individual Borrowers: If the borrower is not an individual (e.g., a company or partnership), banks and HFCs can charge a prepayment fee.
- Fixed-Rate Loans: Prepayment penalties are permissible on fixed-rate loans regardless of the borrower’s status, whether individual or non-individual.
- Switching Lenders: If a borrower, holding a fixed-rate loan, opts to take another loan from a different bank or HFC to facilitate the prepayment, the original HFC is allowed to charge a prepayment penalty.
These conditions highlight the specific circumstances under which prepayment charges are applicable, helping borrowers plan their finances accordingly.
Is overdraft a better option than prepayment for you?
What is overdraft?
An overdraft facility means that surplus funds can be deposited in a home loan account, thereby reducing the outstanding principal and, consequently, the interest charged. The facility of an overdraft account is good because at any point, the person can withdraw that surplus money and use it in circumstances where funds are required. So, the interest that one saves from the repayment of EMI benefits those who seek liquidity coupled with the ability to save on the cost of interest. But an overdraft facility may attract higher interest rates and some additional fees compared to standard loan terms.
Prepayment vs overdraft! What should you opt?
Prepayment results in considerable interest savings, but it does not allow fund withdrawal after the surplus is applied to the loan. Also, in the case of fixed-rate loans, some lenders may impose penalties for early prepayment.
So, the actual choice between the two—overdraft or prepayment—depends on the situation regarding the need for financial flexibility and liquidity in contrast to the interest in a fast manner of debt alleviation and saving.
Conclusion
Prepaying home loans substantially reduces interest outgo over long tenures. SBI offers a stellar prepayment calculator that borrowers can easily utilize to determine possible savings on their housing loans. After considering key aspects, homeowners can decide suitable prepayment amounts and strategy to optimize savings. Use SBI’s prepayment calculator today to accelerate your journey to debt-freedom! Feel free to reach out to our team of experts for any queries.
FAQs
Prepayment can lead to a reduction in the loan tenure and/or EMIs, depending on the option the borrower chooses. By reducing the principal amount, the interest component decreases, allowing for these adjustments.
Prepaying a home loan can reduce liquidity, incur opportunity costs from foregone investment returns, lead to prepayment penalties, potentially affect your credit score, decrease tax benefits, and reduce financial leverage, so it’s crucial to weigh these risks against the benefits.
Yes, you can make prepayments on your home loan every month, provided your lender allows frequent prepayments without penalties.