What Is Partial Prepayment Strategy And How You Can Save Rs 16 Lakh On Rs 40 Lakh Home Loan – News18

The interest rate on home loans was recently hiked by 2.5 per cent by RBI and has led to the present rate of 9.50 per cent. This has distorted the plans of the present and future home loan borrowers of public sector banks. According to this, now the home loan borrowers have to pay Rs 15.05 lakh more as an additional interest on a Rs 40 lakh home loan that has been taken for 20 years.

Now, as per the news report of the Economic Times, you can reduce the overall interest rate on your home loan by following a simple method of partial prepayment during the loan tenure.

EMI on loans works on two factors- interest rate and principal payments. Both factors are directly proportional to the EMI rate. If you can bring down the outstanding principal then your interest rate will also come down and so will your EMI. A partial prepayment is a way through which you can pay your loan quickly with a low interest rate.

“A prepayment is counted only against the principal. You can devise a prepayment plan to pay off your loan quicker,” said Adhil Shetty, CEO, of Bankbazaar.com while talking with the Economic Times. As a borrower, you don’t need to make large partial prepayments, small ones can also help you the same way.

With one partial prepayment, you can reduce the loan tenure and interest amount significantly. You can pre-pay as much as you want, depending on the lender’s rules on the minimum prepayment plan.

For a Rs 40 lakh home loan for a tenure of 20 years, there can be several ways you can reduce the interest and tenure by paying the partial prepayment amount. If you pay one extra EMI annually, then you can save Rs 11.73 lakh on the interest rate and your loan will end in 16 years and 1 month. If you pay Rs 50,000 annually other than EMI then you can save Rs 14.47 lakh on interest and tenure will end in 15 years. Similarly, if you pay 5 per cent higher EMI monthly, then you can save Rs 7.33 lakh on the interest rate at a home loan while the tenure of the loan will conclude in 17 years and 6 months. If you pay 10 per cent higher EMI monthly, you can save around Rs 16 lakh in interest rate.