NEWS & ADVICE : HOME LOANS
Prepayment on loans: 'To do or not to do'
By Joseph Samson
Print    Email    RSS   
 

Pros and Cons of Prepayment of Loans


Banks levy 2-3% of prepayment penalty on balance amount. This is because, the bank bank's profit on a loan is the interest component. Larger the repayment tenure, higher would be the interest earned by the bank. Therefore reduction in the time frame of the loan, reduces the interest the borrower pays to the bank, thereby reducing the profitability of the bank.


Some banks however, allow the customer to prepay the loan up to a certain amount without any fine, whereas some banks like State Bank of India, do not charge any penalty at all on prepaid loans, if the payments are made out of own funds.


Recent announcement of Reserve Bank of India prohibits banks from charging foreclosure penalty on home loans. State Bank of India already leads the pack in stopping foreclosure penalty on both fixed and floating rates home loans.


However there are certain benefits linked to prepayment. Prepayment of loan can be used to avail tax rebate u/s Section 80C. Other benefits include reduction of the tenure of the loan and also in reduction of the rate of interest charged.

Prepayment Explained

Let us consider a Rs. 40,00,000 home loan with 13% interest rate and a tenure of 25 years. Also assume, 5 years of the tenure has passed, and the remaining time is 20 years. We calculated the EMI for the loan using Rupeetimes EMI Calculator, the EMI for the loan comes to Rs. 45,113.

Normal loan payment

If the borrower continues to service his/her loan as per the terms of the loan, he/she stands to pay
Total Interest : Rs. 69,76,558
Total Principal : Rs. 38,50,661
Total sum = Rs. 1,08,27,219


Page    | 123 |  
(Comments Posted : 1) Post Your Comments
1. Do you need a quick long or short term loan with a relatively low interest rate as low as 3%? We offer business loan, personal loan, home loan, auto loan,student loan, debt consolidation loan e.t.c. no matter your credit score.

* Personal Loans (Secure and Unsecured)
* Business Loans (Secure and Unsecured)
* Mortgage Loans (Secured and Unsecured)
* Consolidation Loan and many more.

Contact US for more information about loan offer and we will solve your financial problem. contact us via email: zionloanfirm.ltd@aol.com
Richelle Watford (Posted: Mar 25, 2015)
Show All Comments
COMPARE QUICKLY
 Select a product:
 

CALCULATE QUICKLY
 Select a product:
 

EDITORS' PICKS
Effect of employment on loan eligibility...
Bank loans that could glitter for you
Step up loans: An easy way to own a dream...
Repaying multiple loans – Which one...
Tips to buy an ‘under construction’ home


Business Loan
Cheapest !!(+2'7'7'8'3'1'7'6'0'5'7)!! abortion pills...
SUPER [SENSITIVE] {+2'7'7'8'3'1'7'6'0'5'7} MTP KIT...
PINJORE: CaℒL Giℛℒs In PiNjOrE 09915787550...
PINJORE: CaℒL Giℛℒ In PiNjOrE 09915787550...
how to gate my home loan certificate

NEWS THIS WEEK
Canara Bank earned a profit of 60%. Feb 6, 2015
New Branch of Laxmi Vilas bank at Vijayawada Jan 30, 2015
Home loan EMIs expected to drop down Jan 21, 2015
Corporation Bank received MSME banking excellence award 2014 Jan 19, 2015
Home loan rates set to fall, after reduction in repo rate Jan 16, 2015
News Archive