Your home loan and its interest cost a significant portion of your income, and it is possible that you may be planning for a prepayment of your home loan. However, there are a few things that you must consider before deciding to prepay your home loan to avoid any regrets later. Here are five points that will help you decide whether you should prepay your home loan or avoid doing so.
Prepaying a home loan involves a lot of funds that must be accumulated over years to be used for the prepayment of the home loan. However, with less or no savings, you cannot step ahead to plan the prepayment of your home loan as it involves a lot of risks, which ultimately can lead you to harmful consequences. To avoid such situations, you must invest in your savings and improve your standard of living with the understanding that home loan prepayment is not important, but home loan repayment is important. You can use the accumulated money as emergency funds or invest in beneficial policies that may help support you in the future.
The Government of India allows certain tax benefits under various sections of the Income Tax Act, 1961. This permits you to claim your home loan deduction up to 2 lakhs on a self-occupied house under Section 24b and 1.5 lakhs under Section 80C. However, if you make a prepayment on your home loan, you may lose out on your tax benefits. In case, if you are expecting a rise in the future or are exceeding your interest home loan amount of Rs. 2 lakhs, then you must consider prepayment of the home loan to avoid financial losses in the future.
Loan repayment amount
There are various types of home loans provided by banks to homebuyers, which include fixed home loans and floating home loans. In a fixed home loan, the bank charges a penalty for the early closure of the loan, while in a floating home loan, the bank allows you to close it early with no penalty. Therefore, depending upon the kind of home loan, the bank decides whether a closure penalty should be levied or not. Plus, it is also important to understand the pros and cons of each home loan before deciding to purchase it.
You can find out whether you should choose a fixed home loan or a floating home loan.
Well, by now, you must have understood the situation in which you should decide whether to prepay or repay your home loan. If you need any assistance, connect with our experts and get insights on home loan.