Learn about part payment in Home Loan, it’s use & benefits
Part-payment on a house loan means spending much of the principal amount, irrespective of your EMI. Assume you have taken a loan of fifty lakhs that you must repay in twenty years. This span of twenty years is called your tenure. The principal amount and interest you pay on your house loan are divided among two hundred and forty monthly installments. You organize your finances such that every month you can pay the EMI for the next twenty years. Then someday, you may come across some extra cash. Perhaps it's a bonus. Possibly a policy has matured. Or you have inherited money. Or, among your documents, you have found a small property you didn't know you owned and can now trade it for a profit. Any of the reasons are that you have additional money and would like to make a partial payment on your house loan. Hence, there is no fine on part payment; you can make this payment on your house loan and decrease your tenure and the entire amount you pay to the bank or the financial institution where you have taken your home loan.
Here is the use of part payment of a home loan:
We can use the same example as above. You have taken a house loan
for fifty lakhs for twenty years with an interest rate of seven percent. If you make a part payment of five lakhs at the end of the fifth year, you can save the interest of almost eight lakhs. The principal amount you borrowed from the bank will be reduced; therefore, you may pay a lower interest rate than earlier. You can also select to reduce your term to pay fewer EMIs.
Why does making a part payment on your house loan make sense, except that you will pay lower interest and your term might reduce?
Even though you may think your monetary future is secure over the next twenty or thirty years, you can never be certain of the economy. Employments are being threatened. Companies are going under. You may face health issues that you cannot predict right now. As your family increases, you will have further economic responsibilities to take care of. You will have to think of retirement and higher education for your kids.
Here are some benefits of making a partial payment for your house loan:
A lot of people wonder whether it makes more sense to invest the little additional money that you have come upon or if it is more financially aware if you make a part payment on your house loan. Eventually, how much funds you save in both options should help you decide what direction to follow.
Also, you have already seen some advantages of making a part payment on your home loan above; here is a gathered list of the benefits:
1. Increased value:
You create equity in your property as you pay off your house loan. The less amount you owe against your residence, the bigger percentage of the house you own, making it more comfortable to trade in case you want to.
2. Good credit score:
It can enhance your credit score if you make part payments on your house loan. You can also make numerous part payments. When you make such payments, you indicate to the credit agencies that you are keen to repay the payment you took from them.
3. Shorter period:
Your term will decrease as you have less amount to pay back. If you regularly make part payments on your house loan, you can pay off your loan years earlier of schedule.
4. Decreased interest:
When you reduce your loan amount, there will be fewer funds to pay interest.
5. Reduced burden:
Your total amount will reduce. Your interest will be lessened. You can negotiate with the bank and lower your EMIs. This will downsize the monthly financial burden on you and your family.
6. Heightened sense of empowerment:
You have a more powerful hold over your finances when you proactively make part payments on your house loan. By paying off your home loan quickly, you can see your progress and feel good about your actions to become debt free.
7. Possibility for refinancing:
Part-payment of your house loan enhances your credit rating. It makes you a more appealing applicant for refinancing. You can refinance your house at a lower interest rate.
Making a partial payment on your house loan is an ideal way of saving interest in decreasing your tenure. You don't have to make a partial payment on your house loan only once. Whenever you have some extra money that you can spare, you can make a part payment. But, you need to consider whether investing cash elsewhere will help you save more or should you do the part payment. Before determining, you should carefully consider your options. Visit Loans Paradise to know more!