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5 Tips to Prepay Home Loan Faster

Prepay Home Loan
Prepay Home Loan

For any Home Loan Borrower, to prepay Home Loan is topmost priority. As i discussed in my earlier posts that Home Loan interest increase the overall cost of property. Some of my readers mentioned that they are availing tax deduction but they ignored the fact that they lost HRA (House Rent Allowance) component. At macro level, if your property is appreciating at 10% and at the same time you are paying 10% interest on Home Loan then net/real appreciation is NIL. Currently world economic crisis is keeping property prices under check. Instead of appreciation, property rates are decreasing in most of the pockets in all big cities. Therefore double digit property appreciation is a mirage. Though it is not a universal thumb rule that to prepay Home Loan is best option in current scenario. At the same time it is best option for atleast 90% of the cases. As i always mention that any kind of debt is not good for financial health. Average Home Loan tenure in India is 7-8 years therefore being a smart borrower we should utilize each and every opportunity to prepay Home Loan. Lets check out how we can prepay Home Loan faster

Increase EMI with Increase in Salary

At the time of approval of Home Loan, Home Loan provider fix EMI at 40%-50% of take home salary. Unfortunately with increase in salary this ratio keep dropping. To Prepay Home Loan faster, it is necessary to maintain this discipline. For example, at the time of availing Home Loan your take home salary is 50,000 and Home Loan EMI is 20000. After few years, take home salary increased to 80,000 therefore EMI to Salary ratio reduced to 25% from 40%. To prepay Home Loan faster, it is always advisable to fine tune EMI ratio with increase in salary. In this case, ideal EMI should be 32,000. By maintaining this discipline, We can prepay Home Loan within 7-8 years.

Annual Bonus

Last week, i met one of my family friend. This friend of mine bought a flat in Mumbai for 1 Cr. Every year he gets annual bonus of 8-10 lakh and family spend this amount on vacation abroad. Currently he is serving a Home Loan of 70 lakhs. From personal finance perspective, it is wise for him to prepay Home Loan to reduce interest burden. In basic principles of marketing you come across 3 terms i.e. Need, Want and Demand. In layman terms, Need is basic human requirement & Want is human need shaped by social, cultural and individual personality. Owning a house for shelter is need whereas want is like owning consumer durable, eating out etc. Demand is when an individual wants something which is premium with an ability to pay. In my friends case, flat is need but foreign vacation is demand. Need, Want and Demand should be fulfilled in same order. Therefore in my opinion, wise decision is utilize annual bonus to prepay Home Loan which will help him to save substantial amount as interest on Home Loan.

Investment

Another big dilemma of a Home Loan borrower is whether to invest or prepay Home Loan. To simplify this complex problem we can take help of concept of notional/opportunity loss. Let’s take an example of two of my clients Person A & Person B.

(a) Person A is paying Home Loan EMI of Rs 20,000. His home loan rate of interest is 10.75% and take home salary is Rs 45,000. By maintaining strict financial disciple he is able to save Rs 4,000 per month. Now he asked me that he would like to invest Rs 4,000 per month in PPF. Going by financial prudence, Person A will get return of 8.7% if he invest in PPF but at the same he is not considering that fact that if he divert this amount i.e. Rs 4,000 towards Home Loan EMI then he can save interest of 10.75% on this amount. For every 100 Rs invested in PPF, he is earning an interest of Rs 8.7 per annum but there is notional loss by way of Home Loan interest i.e. Rs 10.75. In short, for every 100 Rs there is an opportunity loss by way of potential saving of Rs 2.05 towards Home Loan interest outflow. In layman terms, it makes sense to invest if you are sure of generating returns more than Home Loan interest rate otherwise its a wise decision to prepay Home Loan. If you divert savings to prepay Home Loan then you will be earning indirect returns equivalent to Home Loan interest rate.

(b) Person B is paying Home Loan EMI of Rs 40,000. Before availing Home Loan, he invested in Mutual Funds and Bank FD’s. Annualized return from Mutual Funds is 10% and from bank FD’s is 9.75%. Now he asked me whether to liquidate investments and prepay Home Loan or continue with investment. Applying same logic of Person A, Returns from existing investments is less than Home Loan Interest rate therefore it makes sense to liquidate the existing investments and prepay Home Loan. By doing this, he will be generating indirect returns equivalent to Home Loan interest rate through Home Loan interest savings.

Word of Caution:

(a) It is advisable to maintain 3-6 months monthly expenditure as contingency fund

(b) 3 months EMI as reserve for any adverse situation like job loss, medical emergency etc.

(c) If you are withdrawing money from investments meant for specific purpose e.g. PPF is for retirement then you should have future plan in place to top up PPF account with equivalent amount through savings within specified period.

Contingency funds should never be touched. Liquid debt mutual fund is one of the best option to park contingency fund.

Home Loan for Income Tax Savings

This is one of the common excuse not to prepay Home Loan. This is one of the marketing gimmicks to highlight positive side & ignore other side of the story. Home Loan should only be taken to reduce lead time between owning a house with own funds and borrow today to own a house to hedge against increasing/cost of owning a property.

If Home Loan is availed just to take benefit of Income tax deductions, in my opinion it is not a wise decision. I can discuss this topic in detail but do remember that for self-occupied property there is loss of HRA tax benefit and for let out property, benefits from rate of appreciation & loss from let out property should be high enough to compensate for interest outflow.

When to Prepay Home Loan

As we know that during initial years of Home Loan, interest outflow outweigh principal payment. Whereas towards the end of Home Loan tenure, principal payment is more compared to interest payment. Therefore as a thumb rule, financially it is more beneficial to prepay Home Loan during first 7 years of Home Loan. Before taking any decision in this regard, it is advisable to do cost-benefit analysis. Though it is not a universal rule, decision may vary from case to case basis.

As we observed through this post that through proper financial planning and informed decision making we can maximize returns from our hard earned money. Returns does not mean only to Earn from investment but any Potential Saving by way of reduced interest outflow is indirect return on investment. This concept of Reverse Return on Investment is currently not popular in India. Hope you liked the post and suggestions on how to prepay Home Loan faster. You can share your comments, feedback and suggestions through following comments section

Copyright © Nitin Bhatia. All Rights Reserved.

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kishore
kishore
9 years ago

Sir my emi is 25k but i can pay 30k per month. My question is, whether this excess emi will be trated as principal amount or otherwise. Is there any need to inform the bank to incresse my emi to 30k ? Pl advise.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  kishore

You can increase your EMI. Based on amortization schedule, additional 5k will be divided between principal and interest. Entire amount will not be treated as principal repayment. You need to submit written request to increase EMI.

nitinj kumar
nitinj kumar
9 years ago
Reply to  Nitin Bhatia

Sir, I want to buy a flat of cost 82 lakh in mumbai including Govt charges and Amenities cost. in which Flat agreement value is 66.0 Lakh and 6.30 Lakh are govt charges( Regs+Stamp duty against Sale deed+VAT+Service Tax) and remaining is Amenities Cost. I want to avail maximum amount Home loan. Somebody told me that Some bank provide Home loan against Amenities Agreement and some third party work. sir pl tell me which bank provides such loan and what is the procedure to get such loan. do i have to pay Stamp duty on amenities agreement or not and hoe much maximum Home loan I can get.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  kishore

I suggest you to submit application with bank to increase your EMI to 30k.

pk
pk
9 years ago

Hi Nitin,
Sorry if this question is not relevant to this page.
I am looking to buy a flat in Pune in an old society constructed in 2007 (7 years old building).
I am living in the same society and paying rent of 16500/month. The cost of flat that I intend to buy is 74L + Registration.

Can you please suggest if it is a wise decision to buy and commit to such a big amount of loan.

Location of society is good and has all the amenities.

Thanks.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  pk

In my opinion, fair value of property is between 50 lakh to 66 Lakh. You may add premium considering other factors.

mm
mm
9 years ago

In Hdfc home loan do we have option to repay principal amount??

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  mm

You can prepay principal without penalty in floating interest home loan.

Deepak Agarwal
Deepak Agarwal
9 years ago

I have taken a home loan for a flat under construction in a Building. If I start my EMI before possession of flat, during construction period itself, can I avail tax benefit.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Deepak Agarwal

Unfortunately you cannot claim any income tax deduction till you get the possession of the property.

Dhiraj Mishra
Dhiraj Mishra
9 years ago

Dear Nitin,

I am your avid reader, thanks for the good community work that you are doing sir.

I have a query. I am buying a flat for 28 lac for investment and I have full funds in FDs to make full payment. Property is APF approved and builder is very reputed. Would you still suggest taking a homeloan of, say 15 lac for 10 years ? My salary takehome is Rs.50k and 25k is my household liability / month. I am just concerned because I will end up paying more interest to bank, than what I get from banks in FDs and property may start appreciating only after 3 years since its a under developed area. So its a long term investment.

Please advise.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Dhiraj Mishra

You avail Home Loan of 5 lakh and can close Home Loan immediately after transaction is completed i.e. execution of sale deed.

Dhiraj Mishra
Dhiraj Mishra
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin. So the only reason I should take a loan is to get the documents verified ? The property is already APF approved by many banks. Still should I mortgage the property via bank loan ?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Dhiraj Mishra

I suggest you take Home Loan

Abhimanyu
Abhimanyu
9 years ago

I’m buying a BDA allotted plot from a reseller and this is the first resale of the property. The owner has laminated the property documents like Allotment Letter, pre

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Abhimanyu

In all probability, Documents will be damaged while removing lamination. Property documents should not be laminated else bank cannot find out whether it is original or color photocopy.

Abhi
Abhi
9 years ago
Reply to  Nitin Bhatia

Now the documents are already laminated is there any other alternative route to prove its original?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Abhi

You may check with Bank.

Abhi
Abhi
9 years ago
Reply to  Nitin Bhatia

Finally got some good inputs from many people around me one of the way is to get a Forensic certificate of the laminated documents from Forensic Lab; with the certificates few banks and lawyers accept that as a valid certificate.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Abhi

Out of box solution :) All the best

Jitendra Madhukar Bhole
Jitendra Madhukar Bhole
9 years ago

Dear Sir,
Good morning.
I have current home loan with LICHFL & I have applied for balance home loan trensfer to IDBI.
Accordingly I have requested LICHFL in written application with their administration fee for list of documents with them on 24/12/2014.
Pls confirm how many days LICHFL take to provide list of documents because till date I diddn’t received the same and on followup with concern at LICHFL I received the replay that
We have indented the file from Stockholding , our head office will be giving us the LOD by next week. This is the staement of 02/01/2015 from LICHFL.
Also let me know really all such original home loan documents are kept in safe costody with stock holding.
Thanks & Regards,
Jitendra

Nitin Bhatia
Nitin Bhatia
9 years ago

You should receive within 10 – 14 days time

Sharath Aithal
Sharath Aithal
9 years ago

Hi Nitin,
Relative of mine purchased a plot from mahaveer green meadows Anekal Bangalore. Do they get khata as the property is not BBMP but BMRDA? And how/where to pay property tax ..they live out of state and are looking for any online portal.

-Thanks

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Sharath Aithal

Reg Khata you need to check with BMRDA and for rest all information, you may check following link http://www.anekaltown.gov.in/

Binoy
Binoy
9 years ago

Hi Nitin

I have OD Home Loan account with SBI.If I repay some part of principal amount, will they allow me to reduce the EMI and Tenure?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Binoy

By default Tenure is reduced and EMI remain same. At the time of prepayment, you may submit written request to reduce EMI or EMI & Tenure both depending on amount of prepayment. Also it will be at sole discretion of bank depending on your Home Loan Tenure, your current age, principal outstanding etc.

MM
MM
9 years ago

Hi Sir,
I ahd taken home loan on under construction property. For the past one year i am paying full EMI. Still i havent registered the property. Now i want divert that home loan on some other property wher i need immediate possession. Is it possible to divert the same loan to some other property when registration hasnt happened so far. Pls advise.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  MM

It is not feasible to divert/transfer existing home loan against new property. You need to apply for fresh Home Loan against new property.

Rajeev
Rajeev
9 years ago

Hello sir,

I am planning to buy a flat worth 40 lakhs. I have FD of 15 lakhs. My question is shall i liquidate this FD and pay as down payment or take loan on FD to and pay towards the down payment by still keeping my FD intact. Kindly advise the best options.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Rajeev

Just to check FD’s Rate of Interest.

rajeev
rajeev
9 years ago
Reply to  Nitin Bhatia

Sir, The interest i get is 8.5% and if i take loan its 0.5 % interest on what bank is giving me. So in that case my total interest rate will be 9%.
*the rates mentioned are of SBI.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  rajeev

You may retain 3 months monthly household expenditure in form of FD as contingency fund and balance can be used towards down payment.

Rajeev
Rajeev
9 years ago
Reply to  Nitin Bhatia

Thank you sir for your suggestion..

prasad
prasad
9 years ago
Reply to  Nitin Bhatia

Hi Nitin. I have similar situation. While repaying should I opt for tenure or emi reduction. Which is advisable pls

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  prasad

It is advisable to reduce Home Loan tenure.

Tom
Tom
9 years ago

Hello Mr Bhatia ! I am in the process of availing a home loan from SBI. How do you rate their Max Gain scheme ? Are there any likely disadvantages if we opt for this scheme ?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Tom

It is one of the best Home Loan schemes. I don’t foresee any negatives.

Tom
Tom
9 years ago
Reply to  Nitin Bhatia

Thanks Mr Bhatia, Another dilemma ! We have been sanctioned an SBI home loan, just below Rs 1.0 crore.The builder’s deadline is 23 Feb. If Mr Rajan reduces bank Rate immediately after 28 Feb ie post-budjet, we have to pay a conversion fee to SBI to avail the reduced rate. But if we deliberately delay the disbursal,we have to pay penal interest to the builder. Should we take a chance and await RBI policy, simultaneously seeking some grace time from the builder ?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Tom

If Home Loan is already sanctioned then it does not make any difference as your mark up is now fixed…If base rate is reduced by bank then you will be automatically benefited. Conversion fees is paid to reduce mark up therefore it will not impact even if you delay disbursement.

vijaymishra1
vijaymishra1
9 years ago

Good Article Nitin, have been going around your other articles as well.
Quick question..
Does increasing EMI to prepay housing loan is good or paying lumpsum to the Principal amount?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  vijaymishra1

Both are good options…With increase in salary, you can increase EMI and in case you received bonus or some lumpsum amount then you can prepay balance outstanding. Instead of waiting to save lumpsum amount you should increase EMI.

Jini
Jini
9 years ago

Hello sir,
I am a NRI and recently i took home loan from Axis bank @10.15 interest, the loan amount is 27,69,000 for 10 years, my EMI is around 36,800. i have an NRI amount of 14lac in my hand, is it wise to do partial payment towards my home loan or do FD@8.9 for 10 years? which is profitable?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Jini

It depends on your tax slab and also income tax benefits you are claiming. Normally, Home Loan prepayment is more beneficial.

VT
VT
9 years ago

Hi Nitin, I have 2 running home loans 25 Lac(>4 yrs) AND 40 L (<1 Yrs Old)…I recently have got 60L from one of my earlier investments….What would you suggest, shall I go for prepaying my HL OR do a FD….I have an annual income of 35L (salary)

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  VT

If interest rate of Home Loan > FD interest then you may clear Home Loan else you may consider FD.

Santosh Balakrishnan
Santosh Balakrishnan
9 years ago

Dear Nitin,

Again heart felt appreciation for sharing your expertise with us.

Quick question.

I am in the process of selling off one property (it has a loan over it). Would it make sense for me to foreclose a second home loan that I am carrying or save this in an FD or something?

IT benefits seem to weigh in favor of the latter since my salary partly falls into the 30% tax bracket. What do you feel?

Nitin Bhatia
Nitin Bhatia
9 years ago

In my opinion, you clear loan. Interest from FD is taxable, if you are keen to invest in debt then you may check out debt mutual funds, they are more tax efficient. Again it will depend on your investment time horizon.

gaurav
gaurav
9 years ago

Nitin,

I read few articles on your website and found it to be helpful. Good work.

Query:
I am currently in USA, I transferred outstanding amount to my mother’s account from my HDFC NRO account in india to her Punjab national bank accnt, then my mother paid the my outstanding home loan amount at LICHFL with her cheque.

Registry is on my name only. But while taking the home loan my father was the co applicant with me. I asked my father to collect the registry document from LICHFL but they are saying that both me and my father have to be physically present with their IDs and 1 yr bank statements then only they will handover the NOC and registry document. As I am in US and I have no plans to go to india for next 2 years or atleast 1 year.

Is it mandatory for me to be physically present their or my father can also collect the registry document on my behalf. How should i convince the LICHFL people?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  gaurav

You may issue letter of authorization in the name of your father. Get it attested from Indian Consulate in USA and then based on this authorization letter your father can collect the property documents. Normally self attested authorization letter also suffice but you may check with LCIHFL whether they need self attested or attested by indian consulate.

Gaurav
Gaurav
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin for your help, I will speak to them regarding this authorization letter.

vijaymishra1
vijaymishra1
9 years ago

Hi Nitin,
One of my Housing plot loan which is 4 years old has been changed to a “Personal Loan” from the bank since I haven’t constructed on the said land. the new ROI is 13.75%.
To repay this is it a good idea to Withdraw PF and pay the amount in total, and use VPF to push back the money so make it even after 5 years?
There is a big mismatch in what I am paying (13.75%) vs what I am getting in PF (>9%). The outstanding amount is 14 Lakhs.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  vijaymishra1

Its a good thought provided you will replenish your PF. You may go ahead.

CK
CK
9 years ago

Is one allowed to prepay a home loan before getting possession of the house from the builder? Our bank told us we cannot prepay unless we get possession and our builder is delaying handover..

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  CK

It depends on terms and conditions of your Home Loan Agreement. Normally there is no such restriction on Home Loan prepayment.

Ankur
Ankur
9 years ago

Dear Nitin –

I am in the 5th year of my home loan with almost 2 L to be paid to the bank. As such the loan should close automatically in < year given the EMI being paid.

If I check my bank statement I am charged around 1500-1800 as interest every month and remaining EMI goes to Principal.

I can Prepay the amount however need your advice if I should close it right away or wait for an year to have it closed automatically.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Ankur

Close it now if you have funds.

Prem
Prem
9 years ago

I shift my job, so i am getting an amount of 3.5 lacs from PF, i am in the second year of paying home loan of 17 lacs (interest rate – 9.95%) , should i repay the loan or should i invest in FD, MF and blue chip funds? Kindly advice.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Prem

I suggest you to prepay Home Loan.

prem
prem
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin…

Padhu
Padhu
9 years ago

Hi Nitin, I’ve seen your comments & are really very useful. I’ve a home loan currently in 4th year @10.80% & have done part payments as well. Now the remaining amount is around 16 lakhs. I’ve a doubt whether to increase my EMI amount or to make part payments in future (which can be done once in 6 months). Can you please suggest on the better options to proceed further?

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Padhu

In my opinion increase the EMI amount provided you are sure of regular flow of additional amount.

Padhu
Padhu
9 years ago
Reply to  Nitin Bhatia

Thanks Nitin. I’m doing regular part payments once in 6 months. I’ve a doubt that when increasing EMI amount, the fund is transferred to both principal & interest amounts. But when paying part payments the fund is entirely transferred to the prinipal amount. So it seems like making part payments is avoiding interests but anyway low EMI leads to high interests.
Is it right or will it make any difference? Please provide your view on the same.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Padhu

You can calculate the interest outflow in both scenarios, you will get the answer.

Triinadh
Triinadh
9 years ago

Hi Nithin,

I have taken loan of 32 lakhs for 30 yrs period. As I am software techie my pay will be revised on yr basis. So Can I pay excess EMI of what I am paying now from next yr and so on every yr ?

I have taken the loan from SBI, If an individual has taken loan for 30 yrs, will there be any rule that he/she should pay loan (to clear) for atleast X yrs. If there is so what is that X period of yrs.

Kindly help me with these details.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Triinadh

There is no such rule. You can close or prepay home loan even next day of disbursement.

prashant gupta
prashant gupta
9 years ago

Hello Nitin,

I have taken home loan in 2012. Amount senctioned was 25 Lacs however i have disbursed only 19 Lacs. i have paid 90% to the builder.

currently my EMI is based on amount senctioned i.e. 25 Lacs which is around 24960 Rs. per/month.

current outstanding amount of loan is 17.5 Lacs.

i do not see possession will be happen in next 2 years shall i pre-pay some of the loan amount i.e 2-3 lacs. as i am having this amount .

Need your suggestion what to do in this situation.

Thanks.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  prashant gupta

Interest rate should be charged only on balance outstanding i.e. 17.5 lac. You can prepay as per your convenience.

prasanth
prasanth
9 years ago

Hi Nitin, I am having home loan of 33 lacs for 20 yrs and I would like to reduce the loan by doing part payments. I heard some one that, even if you pay part payment, it does not alter your EMI. the thing i dont understand is for example, if i have surplus of 500000 now and if i pay it to bank, will they subtract this amount from 33 lacs and emi would be revised for 28 lacs ? is this correct? In this case does interest would be levied only on remaining principal ?.. Please clarify

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  prasanth

By default your Home Loan tenure will be reduced but you can also opt for reduction of EMI at the time of prepayment.

Ashish
Ashish
9 years ago

Hi Nitin, I have 2 House Loan LOAN1 for 16Lakhs and LOAN2 for 35 Lakhs. I have done part payment to LOAN1 which is reduced to 13 Lakhs from 16 Lakhs. Now my questions is, will that make sense to do part payment to LOAN2 i.e. 35 Lakhs first. Or in other words, giving priority to PRE PAY LOAN2 i.e. 35 lakhs first over the LOAN1. Or, it wont make much difference if I do part payment to either of the loans, considering my interest rates are same for both the loans.

Nitin Bhatia
Nitin Bhatia
9 years ago
Reply to  Ashish

If interest rate is equal then prepay 16 lac loan first.

ChinnmaY
ChinnmaY
8 years ago

Hello Sir,

All the conversations below were very helpful to me in particular.

Can you guide me on Home Loan Scheme with Overdraft Facility V/S the normal home loan?

Many Thanks
ChinnmaY.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  ChinnmaY

I will write a separate post on same but Home Loan with overdraft facility is beneficial for borrower provided interest rate is some for both.

vijay
vijay
8 years ago

Hi Nitin, I have 2 House Loan LOAN1 for 7Lakhs @9.75% ICICI and LOAN2 for 15 Lakhs@10.10% LICHFL. I have done part payment to LOAN1 which is reduced to 4Lakhs from 7 Lakhs. Now my questions is, will that make sense to do part payment to LOAN1 or LOAN2 or Invest in SIP.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  vijay

You may clear Loan 2 on priority.

vijay
vijay
8 years ago
Reply to  Nitin Bhatia

Thanks, but if i invest in SIP get good return than?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  vijay

In that case, you may opt for SIP.

Suyog Goraksha
Suyog Goraksha
8 years ago
Reply to  vijay

Check with your SIP annual return first if its more than 10.10% which is your ROI for Loan2 then go for SIP else Loan 2 is must be your priority ! @nitinbhatia121:disqus Am I correct sir ?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Suyog Goraksha

That’s correct :)

Ganesh
Ganesh
8 years ago

Hi Nitin,

I have sanction letter from HDFC Ltd and will be taking 1st disbursement in next week. Kindly let me know is it necessary to take insurance policy or any other product while taking home loan.

As per my knowledge, unnecessary all bank’s are selling such additional products to customer and RBI also informed bank NOT to sell such product to customer.

Kindly help me, what I can do if HDFC forces me to take such product at last minute of disbursement. I’m not interested in any such product

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Ganesh

It is not mandatory to avail insurance policy. Please check my following post for more details on illegal financial bundling
https://www.nitinbhatia.in/personal-finance/bundling-of-financial-products-is-illegal/

Venu
Venu
8 years ago

Dear Nitin,

I am existing customer of LIC HFL from Hyderabad and currently located in Bangalore.

I would like to know about whether I can pay extra amount for home loan in Bangalore branch to minimize principal amt ?
Also, Please suggest me whether I can pay 1 lkah extra amount apart from EMI in each year or Do I need to go with increase EMI per month ? ( Loan tenure is 16 years and completed 4 years as of now)
Thanks in advance !!
Regards,
Venu

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Venu

You can pay in Bangalore. You may opt for increase in EMI.

Asai
Asai
8 years ago

Hello Mr. Nitin, Hope you are doing good. Your suggestions, ideas are really very good. greetings to you.

My question is

I got housing loan 3360000 from LIC, rate of interest 10.25 for 20 years. 19 months I have completed now. each month I have paid Rs. 33000 as EMI. So totally Rs.627000 I have paid. I checked my outstanding it is showing Rs.3,270,039.66 just Rs.89961 only debited from principal remaining they take as interest. Actually I shocked. Why they taking this much of amount as interest as beginning stage. when they will take at least 50% amount from my EMI?

please make me clear

Thanks in advance

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Asai

You may ask for amortization schedule or loan statement and it will clear your doubt. During initial Home Loan tenure, the principal payment is low and majority of EMI service interest.

Asai
Asai
8 years ago
Reply to  Nitin Bhatia

Thank you Mr. Nitin Bhatia

mydheen
mydheen
8 years ago

Hi Nitin, I had homeloan for 25 Lakhs, which was started in July 2013.. However i have started paying pre-payments every month from Dec-2014. Hence by now, the total outstanding has become 15Lakhs..initially it was for 240 months, and i m not sure how many more months are remaining. Hence i request you to suggest, whether I can continue with paying prepayments or increasing the EMI.. i am paying all my prepayment through online only, and not contacted the branch for details.. the bank will take care of interest reduction right? .. interest point of view, it came down to 13K from 22K per month.. Please suggest how i can continue this..

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  mydheen

If you are sure of regular fund flow then you may increase your EMI. If the fund flow is not regular then you can prepay as and when you receive funds. All interest calculations will be taken care. Only ensure that amount is credited in your Home Loan account.

jaffar
jaffar
8 years ago

Hello sir
I have taken loan of 4630000 in indian bank on 18-09-2014 at Interest rate 10.25% and initial EMI would be 39000 and from the start i used to pay 1 Lakh monthly to close of the loan soon and they segregate 34000 as EMI & 66000 as prinicipal Repayment as i wanted to close off the loan sooner within 2-3 Years, but gradually interest rate reduced to 9.65% during 31-05-2015 and as of 30th September 2015 my loan balance is 39,48,729.000. Kindly help me to sort out this matter.
your suggestion would help me much, can i ask them to lower the tenure period or should i pay the EMI 34000 Monthly and pay prinicipal payment 66000 Monthly as i think it is for 15-20 years (Not sure about it) as i would like to close off the loan within 4 years , kindly suggest me how can i proceed further.I have paid for insurance also at the initial stage hence they said it is mandatory to take it up.

Regards,
Jaffar

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  jaffar

You may reduce Home Loan tenure as i suggest in my posts and comments.

jaffar
jaffar
8 years ago

Hello sir

I have taken loan of 4630000 in indian bank on 18-09-2014 at Interest rate 10.25% and initial EMI was 39000 and from the start i used to pay 1 Lakh monthly to close of the loan soon and they segregate 34000 as EMI & 66000 as Principal Repayment as i wanted to close off the loan sooner within 2-3 Years, but gradually interest rate reduced to 9.65% during 31-05-2015 and as of 30th September 2015 my loan balance is 39,48,729.000. Kindly help me to sort out this matter.

your suggestion would help me much, can i ask them to lower the tenure period or should i pay the EMI 34000 Monthly and pay prinicipal payment 66000 Monthly or Increase Tenure period & EMI, as it is for 15 years (180 Months) as i would like to close off the loan within 4 years , kindly suggest me how can i proceed further.I have paid for insurance also at the initial stage hence they said it is mandatory to take it up.

As i got to know from your previous answers to everyone stating that lowering the tenure would ultimately reduce the interest rates if i am paying loan for 180 months ie.15 years my EMI is 39000.000 & interest payable would be 26 lakhs and if i opt for 5 years tenure with EMI 98944.000 then interest payable would be around 13 Lakh, kindly let me know lowering the tenure and increasing the EMI would benefit me or not ?

Awaiting for your valuable comments.

Regards,
Jaffar

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  jaffar

It is financially beneficial to reduce Home Loan tenure. You may cancel your Home Loan insurance policy.

jaffar
jaffar
8 years ago
Reply to  Nitin Bhatia

Dear Sir,

I have approached the bank based upon your suggesting and bank Manager advised me that “the current tenure is for 180 Months, however everything depends upon your repaying capacity if you pay more per month you can close the loan earlier; and the interest will be charges on your outstanding balance only irrespective of the term you choose, you continue to pay one lakh per month and the loan will be closed may be in 4 year time.

The term is chosen only to arrive loan eligibility the actual term depends upon actual repayments, so no need to choose any period now you continue to pay one lakh and it will be closed soon may be in 4 year time.

Sir kindly suggest me what can i do , if you could suggest me practically i will go according to your suggestion which lower my interest payable and benefit me in this stuff as i have also requested for Insurance policy cancellation from the bank. As of 30th September 2015 my loan balance was INR.39,48,729.000 and today (21-10-2015) i remitted 1,00,887.000 hence today 21st October 2015 my current loan balance is INR. 38,47,842.000 ( As i said earlier i used to pay 1 Lakh Per Month and last month EMI is 32599 and now 68288 for Principal & 32599 for EMI deducted from the main balance and showing as INR. 38,47,842.000 now. Kindly analyse the scenario and advise me accordingly
————————————————————————————————
Nitin Bhatia replied | Thursday, Oct. 15th | View on Nitin Bhatia

It is financially beneficial to reduce Home Loan tenure. You may cancel your Home Loan insurance policy.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  jaffar

This forum is only for general discussion. For personalized consultation on paid basis, you can mail at info@nitinbhatia.in

balaji
balaji
8 years ago

Sir,

I planning to sell my property in native place purchased from my father in 2013 for family settlement. Can i use this money to repay my existing home loan or invest in FD.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  balaji

You have to pay capital gain tax and then use this money for any purpose of your choice.

Prateek
Prateek
8 years ago

Hello sir,
I am going to buy a house and willing to pay through sbi home loans giving the loans at the interest of 9.7%. I have to take a loan of 40,00,000 with my capability of paying EMI being between 40,000 to 50,000. I want to know of how much tenure of the loan will be beneficial for my purchase?
With regards,
Prateek

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Prateek

As i keep highlighting that Lower home loan tenure is always better therefore you may keep EMI at 50k per month and opt for lowest home loan tenure.

Prateek
Prateek
8 years ago
Reply to  Nitin Bhatia

thank you sir for your valuable suggestions.

Anoop
Anoop
8 years ago

Hello Sir,

This is Anoop. I got a home loan sanction letter of amt 12,12000 (12.12lacs) for 16 years with rate of interest 9.35% from SBI RACPC delhi setting EMI of Rs12,458. Mistakenly the tenure was set to 16 years instead of 10years and in rush I have taken amount of Rs 6.2 lac from bank (no installment paid as of now).
Also, I dont think all 12lacs amount is needed, I am gonna take 3lacs more (lump sum – 9lacs from bank) only.
My query is, if I set my EMI to 16000 per month on principle of 9lacs then in how many years this loan would be completed. Is there any role of 16 years tenure which was approved mistakenly?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Anoop

You may check the same through EMI calculator available on following link

https://www.nitinbhatia.in/home-loan/emi-calculator/

Ram
Ram
8 years ago

Hello Sir
I had a house loan from HDFC of 40 lakhs , My current loan outstanding is 36.96 lakhs. EMI is Rs. 40794 and repayment in 173 months. Should I repay this loan ??

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Ram

You can repay.

deepak
deepak
8 years ago

Hi sir, I have home loan at 9.75% for 20 yrs from Oct 2012
I have prepaid 2 lacs till date as per payment.
I am getting a personal loan @ 11% for 5 yrs of 2.5 lacs with emi @ 5500.
Is it wise to get this loan and prepay my home loan, as I have found personal loan interest is some 90k in 5 yrs while interest on paying home loan costs me 3 lacs.
Can I save 2.1 lacs as calculated by paying home loan thru personal loan.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  deepak

You should compare interest rate instead of absolute interest. As the home loan amount is high therefore in absolute terms the interest outflow will be high on home loan compared to personal loan even the rate of interest is low compared to personal loan.

As the personal loan interest rate is 11% therefore i will not suggest to avail this loan just to prepay home loan at 9.75%.

Saji Nair
Saji Nair
8 years ago

Hi sir,
I have taken a home loan for Rs 2,000,000 from IDBI in 2010 at an interest rate of 9.5%. Later the bank has raised the interest rate to 10% and then to 10.5%. Now the interest rates had come down and the bank is not ready to reduce the interest rates. When contacted I got the replay that new interest rates are only for new customers. Is this information is correct ?. What I have to do to get the benefit of lower interest rate ?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Saji Nair

You may pay conversion fees to reduce home loan interest rate. If bank refuse then you can transfer your home loan to either SBI or ICICI Bank.

shyam
shyam
8 years ago

Hi Nitin, Many thanks for the useful information through your blog.
I have home loan of 10L for 10yrs started last year, and current EMI (13k) is being managed with the monthly rent I am getting from the property. Is this a viable option to repay the loan as soon as I have the additional fund, or I can continue with the EMI payment through the rental income from the property?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  shyam

You may prepay from own sources at the earliest.

Sharad singh Rathore
Sharad singh Rathore
9 years ago

very informative article

Subrahmanyam
Subrahmanyam
8 years ago

Hi sir,
I have taken a home loan of 20 lakshs on july 2015 @9.75% at SBI and paying a EMI of 20k every month and my parents are residing in that home.Currently i am working in different location and paying rent over here. is it possible for me to claim HRA for my stay and tax saving for the home loan.
Thanks

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Subrahmanyam

You can claim HRA and also claim Home Loan tax deductions.

aVii aRvInD
aVii aRvInD
8 years ago

Sir
I had 1700000 home loan from can fin 2012 (10.95). Now as we know HL Interest rate is revised.
1. So could I move to reduce the rate when Canfin is charge 0.5%+ processing fee charges to me. Although canfin said customer have to apply to this, we can’t give you automatically this benefit.
2. Canfin has a huge rate of interest So could i transfer this loan through another bank.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  aVii aRvInD

1. You have not mentioned the revised interest rate offered to you after payment of conversion fees.
2. Preferably, you should transfer to SBI or ICICI Bank.

Anil Thota
Anil Thota
8 years ago

Hi,

I have taken Home Loan from SBI Rs.17.50 Lacs, now the Interest rate is 9.55%, I have opted for 30 years with EMI of 16026,

Now I want to make every month prepayment through HDFC ECS (NEFT),(16+9)=25K every month.

Is it wise decision
any prepayment charges will apply on this
with this 25K, in how many years I can finish up my loan

Please guide me, if my decision is wrong.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Anil Thota

Home Loan prepayment is a good decision. I suggest you to increase your EMI instead of monthly prepayment. For the impact of increase in EMI on home loan tenure, please check following link

https://www.nitinbhatia.in/home-loan/emi-calculator/

Vijay Kharkar
Vijay Kharkar
8 years ago

hi
i have taken a home loan in 2013 of Rs.15 Lacs for 20 yrs with EMI 15077 and Car Loan of Rs.3 Lacs with EMI 6430 for 5 yrs , i have Extra 4 Lacs in my FD which loan i shall to pay ??

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Vijay Kharkar

In my opinion, you should clear car loan first.

dinesh
dinesh
8 years ago

Hi – I have taken home loan from hdfc at Rs 15 lakhs for 20 years with Emi 15036 now in 1998 and now 726000 principal is left so I have money from my nri earnings so should i pay this loan or go for new home loan for new property I am looking at.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  dinesh

You may prepay existing Home Loan before availing fresh home loan or buying another property.

Rajkumar
Rajkumar
8 years ago

Sir, I have a home loan of outstanding principal – Rs 3.5 Lakhs @ 9.65% for 33 months due,which I would like to repay from my PF (with draw). Can you suggest me – it wise to repay from PF with draw.

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Rajkumar

Though it is subjective and depend on situation to situation but you can prepay from PF withdrawal.

Bana
Bana
8 years ago

I have 2 home loans one @ 7.5% from ICICI which ends in March2017 with tenure of 13 yrs. Current O/S loan is around 1.77L. Another @ 7.25% from ICICI with tenure of 20 yrs on which 9 yrs is over and current loan o/s is 20L. Both of them are at fixed rates for full tenure. I also have sufficient FDs which is more than double the o/s loans. The rental from both properties are covering the EMIs. I save around 35k per month in SIP equity based funds and another 40k per month towards Fixed deposits. Is it beneficial to continue doing the same way or to Prepay the Loans?

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Bana

You have not mentioned whether you are availing tax deduction on home loan or not.

Bana
Bana
8 years ago
Reply to  Nitin Bhatia

Yes availing Up to 45k in both loans per year

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Bana

I suggest you to maintain status quo.

Sumit Tiwary
Sumit Tiwary
8 years ago

Hi Nitin,
I just took a home loan of 38L at 9.6% for 22 yrs paying an EMI of 35011. I have 2 questions. Please suggest which is advisable?
1. If I increase the EMI by 10% every year, how soon can I close the loan?
2. or is it better to keep the EMI as it is and ad up the 10% for 12 months and prepay.

Sumit

Nitin Bhatia
Nitin Bhatia
8 years ago
Reply to  Sumit Tiwary

1. You may calculate using EMI calculator available on following link
https://www.nitinbhatia.in/home-loan/emi-calculator/

2. I will prefer to increase EMI

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