[ACM]

Yes for those enjoying a fixed rate of interest lower than or equal to 7.5% it does NOT make for good logic to prepay. I had earlier a 15 year loan at 7.25% floating and it went over time to 12% I kept prepaying as well as renegotiating the loan rates to keep bringing it down showing either competition option or paying a small amount. Net effect I finished it off in 7 years. Yep the Home loan tax saving was lost but it is not really clear if paying interest to get tax rebate really is logical.

Anyways it allowed me to take a 1 year sabbatical last year - one can't really take a long peaceful break unless the loans are paid off.

Now of course am back to the grind to make up lost work time.

Prepaying a car loan though is not that easy and most come with a significant penalty. The Loan companies seem to make much more money (better returns) on Car loans rather than home loans.

[mb_jg]

Originally Posted by ACM

Yes for those enjoying a fixed rate of interest lower than or equal to 7.5% it does NOT make for good logic to prepay. I had earlier a 15 year loan at 7.25% floating and it went over time to 12% I kept prepaying as well as renegotiating the loan rates to keep bringing it down showing either competition option or paying a small amount. Net effect I finished it off in 7 years. Yep the Home loan tax saving was lost but it is not really clear if paying interest to get tax rebate really is logical.

I agree. I have a fixed interest loan at 9.50% from ICICI, but I am still in the process of foreclosing it. Why? 1) I don't want to pay the bank the interest component calculated over 20yrs. (2) I would rather invest the EMI equivalent in something else rather than pay the bank. (3) Peace of mind of having a roof over your head, which is completely owned. (4) You automatically ease off the pressures of work knowing that liabilities are zero.

I have noticed I am a much happier person since I have started the prepayment process. I have stopped bothering about if there's enough in the bank account to pay the next EMI.

[NPV]

Anyone planning partial/part pre-payments on home loans - do keep this in mind:
If your home loan tenure (tenor) is > 5yrs (usually 15/20 years tenor is common), then try to make most of your larger part pre-payments within the first 4-5 years since that's when most of your EMI will be going towards interest on the loan.

[aka_iitd]

Originally Posted by mb_jg

I have noticed I am a much happier person since I have started the prepayment process. I have stopped bothering about if there's enough in the bank account to pay the next EMI.

Yes I agree with you. Sometimes it becomes so stressful when RBI raises the rate. Bank are smart enough to raise the interest but smarter in reducing

[ACM]

Originally Posted by NPV

Anyone planning partial/part pre-payments on home loans - do keep this in mind:
If your home loan tenure (tenor) is > 5yrs (usually 15/20 years tenor is common), then try to make most of your larger part pre-payments within the first 4-5 years since that's when most of your EMI will be going towards interest on the loan.

Yep this is important. One must pay as much as possible upfront. The home decoration and the fancy smart LED TV or the Huge wifi home theator can wait a bit. Infact the fancy car too can wait - Guys am saying this on TBHP need Z+ security now.

[rkg]

Originally Posted by ACM

Prepaying a car loan though is not that easy and most come with a significant penalty. The Loan companies seem to make much more money (better returns) on Car loans rather than home loans.

SBI do not have prepayment penalty for car loan. further one can avail SBI advantage car loan where interest liability is less.

[NPV]

Originally Posted by bblost

I recently did a part pre-payment of my home loan.
The most confusing aspect was calculating what would be reduction in tenure.

Finally figured out how it works. I hope I am correct. If I am wrong, please do correct me.

Here's a very simple but powerful Excel spreadsheet that can help with all kinds of 'What-If' (pre-pay ? If so how much, when, etc) analysis for your home loans. I have found this very useful so far. Hope this helps.

[vivek.ks]

Originally Posted by NPV

Here's a very simple but powerful Excel spreadsheet that can help with all kinds of 'What-If' (pre-pay ? If so how much, when, etc) analysis for your home loans. I have found this very useful so far. Hope this helps.

Thanks for your upload, however this excel is opening as blank in Excel 2010.
Any one else having similar issue

[vivekiny2k]

I see a lot of statements about peace of mind and reluctance to pay interest over a long period. But do keep in mind that a 30K EMI is probably going to sound like peanuts 10 years down the line considering the inflation rate.

Paying another 10-30K today to get rid of the (then) peanuts may not be as lucrative once you think about it.

As a rule of thumb, if your interest rate is fixed, and inflation rate is going to rise in future, you should not pre-pay. On the other hand, if inflation rate is going to fall, you should pre-pay (taking into account any penalties).

At the the time of taking the loan, banks always have some calculation based on future expectations "at the current time". In course of time, these things change and that's when you should even start thinking about pre-payment.

[mb_jg]

Originally Posted by vivekiny2k

As a rule of thumb, if your interest rate is fixed, and inflation rate is going to rise in future, you should not pre-pay. On the other hand, if inflation rate is going to fall, you should pre-pay (taking into account any penalties).

Chief, as a rule it sounds good but only in a perfect world. There are other factors to consider like, health issues, job security etc. Most people start their lives thinking that things will go smooth till the end. The reality is different, there is more job insecurity today as there was say even 5yrs ago.

A lot of people who were living the dream of blowing up disposable income on gadgets, cars, renovation etc, & got a rude shock when the slowdown hit in 2009, another 3yrs after that the slowdown is back.

But again, to each his own, we all are just expressing our views.

[dev_kudle]

Hello Team,

I have a very important & urgent query on my home loan & need your expert advice as I'm a bit unsure.
I have a home loan from HDFC bank on floating interest rate. The present principle outstanding is 1.6 lac & I'm under 30% tax slab. I'm planning to close this loan by making full payment.
Is it advisable if I make a pre-payment & close this loan or should I keep it taking my tax deductions into considerations??

Please provide your inputs in simple words (I'm an IT guy & these things takes hard time to go into my mind ).

BR

[dass]

Originally Posted by dev_kudle

Hello Team,


I have a home loan from HDFC bank on floating interest rate. The present principle outstanding is 1.6 lac & I'm under 30% tax slab. I'm planning to close this loan by making full payment.

BR

You get no or very little interest benefit considering only 1.6L is remaining, so there is no actual reason for you to foreclose the loan. However, you will get benefit on the principal amount within the 80C section (Up to 1L), and that also would not be there next year in your case.
Honestly speaking, there is neither a benefit nor a harm in closing the loan early. IF you have the money, go ahead and close it as you would not have to pay the EMI anymore and that is a good feeling.

[dev_kudle]

@dass: Thanks for your suggestion on this.

I will then make the full payment & will close this loan. However, what all things I should be asking from my bank once the full amount is paid & the loan is closed. I mean what all documents like NOC or stuff like that. Is there a checklist for this.

Thanks again.

[dass]

All of your documents that are in the banks possession, Sale Deed, receipts, EC, OC, Khata copy and finally the NOC. It is not a one time process. I guess you will have to visit the bank first, tell them you are closing the loan and they will give you a letter with the payment details. You can then make a payment and they will ask you to come back at a later date (Usually within 15 days) to collect all your documents.

Congratulations on closing a Home Loan, I am about 10 years away from closing mine.

[YaeJay]

If one has the option to prepay the loan, as in depreciating interest, One must go ahead and clear the debt.

Better still don't take a loan. Buy what you can afford. Or plan in such a way that you have enough to buy what you want in x years. consider the inflation etc.

other option is take a loan invest in something that pays more than your due.

my 4 anna.