Being a homeowner is one of the most fulfilling experiences for most people. Given the significant financial commitment, it makes sense to obtain a home loan to cover the entire cost of the purchase. This eliminates the need to save for years in order to save up the money needed to buy a house, and a home loan also offers enticing tax advantages.
You may be wondering, “What about home loan repayment now that you are convinced of the benefits of taking out a loan for a home?” There are several options for home loan repayment that you could take into consideration. How do home loan repayments work? However, before we discuss this, let’s understand how home loans are repaid. Your home loan is repaid through equated monthly instalments, or EMIs. You must pay your lender this set amount every month until you have paid off your house loan in full. Your EMIs will be due on a fixed date each month (for example, say 3rd of each month). You need to pay EMIs throughout the loan tenure till you have paid off your home loan.
Each EMI is made up of interest payable on your loan and part principal repayment. Even though the EMI stays the same amount for the duration of the loan, in the first few years, the EMI’s interest component is larger (and the loan repayment component is lower). When you are closer to completing your home loan repayment, the situation reverses, i. e. the principal repayment component of your EMI is higher while the interest component becomes lower.
EMI is calculated as follows, with interest decreasing over time and principal repayment increasing. This is an example of how EMI is calculated.
Let’s say you have taken a loan of Rs. 25 lakh for a tenure of 20 years at 8. 6% interest. Your EMI will be Rs. 21,854. Here is break up of your EMI over the 20-year loan tenure.
Absolutely! You can make partial payments towards your HDFC home loan. By using this option, you can lower the amount of your outstanding loan and possibly save money on interest.
The following information will help you make partial payments on your HDFC home loan:
How to Make a Partial Payment
You can settle your HDFC home loan partially in one of two ways:
- Online: Log in to your HDFC NetBanking account and select the “Make a Payment” option. Choose your home loan account and enter the amount you wish to pay.
- Offline: Visit your nearest HDFC branch and make a payment through cash, cheque, or demand draft.
Things to Remember
- Minimum Payment Amount: There is no minimum amount for partial payments. However, it’s recommended to pay a significant amount to make a noticeable impact on your outstanding loan balance.
- Prepayment Charges: HDFC charges a prepayment penalty of 2% of the principal amount being prepaid if you refinance your loan. However, there are no prepayment charges if you use your own funds to make the partial payment.
- Impact on EMI: Making a partial payment will reduce your outstanding loan amount, which can potentially lower your EMI. However, your EMI will not automatically change. You need to contact HDFC and request a revised EMI schedule.
- Tax Benefits: Prepaying your home loan can help you save on taxes. You can claim a deduction of up to Rs. 1.5 lakh per financial year on the principal amount repaid. Additionally, you can claim a deduction on the interest paid on your home loan.
Is Part-Payment Right for You?
Making a partial payment on your HDFC home loan can be a good option if you have surplus funds and want to reduce your debt burden. However, it’s important to consider the following factors before making a partial payment:
- Interest Rate: If your home loan interest rate is high, making a partial payment can help you save on interest costs.
- Investment Options: If you have other investment options that offer higher returns than your home loan interest rate, it might be more beneficial to invest your surplus funds instead of making a partial payment.
- Tax Benefits: Consider the tax benefits you can claim on your home loan interest and principal repayment before making a partial payment.
- Emergency Fund: Ensure you have sufficient funds for emergencies before making a partial payment.
Making a partial payment on your HDFC home loan can be a smart financial decision if done strategically. Consider the factors mentioned above and consult with a financial advisor to determine if part-payment is the right option for you.
Time your EMI
How you time your monthly EMI payments plays an important role in your cash flows. If you are employed, your EMI should coincide with your salary date. Make sure you have the money in your bank account to cover the EMI payment if you work for yourself. Making sure your EMI is paid on time will save you money by preventing late fees and maintain your credit score.
The earlier the better
Getting a house loan in your twenties or thirties allows you enough time to pay it off before you retire. Additionally, you have the choice of a longer tenure home loan, which means that the EMI for the same loan amount will be lower.
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Why should you make a part payment of HDFC home loan?
By making a part-payment of your HDFC home loan over and above your EMI, you save interest on the loan as the principal amount gets reduced. Part payment can be made, whenever you have funds available or even at regular intervals if you plan it. By doing a HDFC home loan part prepayment online you can:
Does HDFC charge a prepayment charge for a home loan?
There is no HDFC home loan prepayment charges for home loans with floating rate of interest. Prepayment charges of 2% of the amount to be prepaid are levied for home loans with fixed rate of interest in case of refinancing (where, to prepay, you borrow money). No prepayment charges are levied if you prepay your housing loan with your own money.
How to Pay HDFC home loan partial prepayment online?
Online HDFC home loan partial prepayment is possible. You must submit an online payment using internet banking or do what you normally do for EMIs. However, be careful to review the loan account statement next month and obtain confirmation of the same. Your loan tenure or EMI will vary due to the prepayment.
What is HDFC home loan prepayment calculator?
HDFC Ltd Home Loan Prepayment Calculator helps you in calculating the amount that you save by making a prepayment on your home loan from HDFC. HDFC’s partial prepayment will help you in reducing the total tenure of your existing home loan, EMI or both of these together. This can be done as per your financial requirements.