Home loan prepayment is defined as early repayment done by borrower. A person can either do in part or full repayment of home loan. The reason is to lower the interest burden or to clear the loan all at once.
Home loans are a long term relationship with the lender that lasts for 15-20 years at least. When a person wants to prepay home loan, they have to inform the lender via writing in advance. There is a prepayment penalty which may or may not be charged by the lender. Hence you need to read and understand the terms and conditions in the loan application about prepayment before signing the loan application.
Why is loan prepayment a good choice?
Prepaying a home loan in part or full saves you from interest burden. In most cases, people end up paying more interest than the principal amount they had taken for the loan. Another reason is clearing debts. No one likes to keep debt in their profile for a long time. Hence by clearing this home loan, a person can be debt free which can help in strengthening their financial profile. There are tax benefits associated with principal repayments and interest paid. Hence a person can use the prepayment method to lower interest burden, be debt free and save taxes in the long run.
Prepaying a loan has a psychological impact on a person. It gives them a feeling of financial freedom and allows the person to plan better for retirement and look for new investment options. Hence it is wise to check home loan prepayment clauses by your lender and then take a decision. If prepaying the home loan with penalty is feasible then a person can consider the option of prepaying the home loan.