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Diwali Bonus: a lot of you Diwali bonus will be received. Planning to spend, save or invest this bonus amount? If you have a plan, then definitely implement it, but if you save a part of it, then it can prove to be more useful for you in the long term. You can also use it to reduce your debt burden, which will involve making a better decision.
loan payment
Gaurav Mohta, Chief Marketing Officer, HomeFirst Finance Company, says that the repo rate and interest rates are increasing continuously. In such a situation, you are advised to pay off any kind of loan to save interest. If you have taken any loan on credit card or if you have any personal loan going on, then first of all you should pay it. The reason for this is that these are unsecured loans and generally have higher interest rates. After this you should settle your home loan. You can do this in whole or in part. It depends on how much money you have set aside. While this is not a very exciting way to spend money, it will not only save you lakhs of rupees known as interest but also reduce your liability for the house.
prepayment of loan
Home loan taken from a lender is repaid through monthly EMIs. EMI consists of two parts: payment of principal and payment of interest on the total principal payable. When you start paying off the loan, a major part of your EMI goes towards paying interest while a smaller part goes towards paying off more of the principal. As you pay EMIs regularly, your outstanding principal comes down. This reduces the interest portion of the EMI and increases the rest of the principal portion. Your loan will be closed once you have paid the entire principal amount.
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Prepayment is the amount you pay against EMI. According to Mohta, since you have already deposited the interest part in the EMI. In this case, this amount is directly deducted from your outstanding principal. In such a situation, the next time you pay the EMI, you have to pay less interest as a part of the principal is paid before the tenure stipulated in the loan agreement. Through regular prepayment, you close your home loan before the stipulated period. This saves you lakhs of rupees known as interest.
This is a profitable deal for the borrower in every way. Despite this, many people are not able to do regular prepayment due to lack of information. At the same time, many people forget to do this. Many lenders are offering the facility of regular automated prepayments. This can make a big difference in this area. Mohta says that under this voluntary service, you can give a standing instruction to your bank and under this, an amount of Rs 2000 is deducted from your account every month for prepayment of home loan. This small amount over a period of time helps you pay off the loan before the stipulated tenure. In this case, you save lakhs of rupees known as interest.
How much will be saved by prepayment of home loan
Let us assume that you have taken a loan of Rs 20 lakh for 20 years at 9.5 per cent interest. In this case your EMI will be Rs 18,643. In 20 years, you will spend Rs 24,74,230 on a 20 year loan. But if you prepay only Rs 2000 per month, you will be able to save 55 EMIs or Rs 6,60,585.
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