My journey of prepaying home loan - 2020-2023

[pawello]

@hilarious Sure. I'll DM it to you.

 

[victoria52]

@pawello I am so sorry but the way you are looking at this is completely wrong. The simple maths is as long as your opportunity cost of capital is more than your interest rate you should take the longest tenure of loan and never prepay.

Ex. If your saved up money is earning 10-15% cagr which is petty realistic with mfs than paying even 9% interest on loan is fine. By prepaying you are losing on the diff.

 

[pawello]

@victoria52

earning 10-15%

Not to disparage your theory, which makes sense, but this figure is taking an optimistic look at equity investing. I'm more inclined to pay off my debts should I lose my earning capacity due to the uncertain job/business market. I'm not even comparing the two options; just highlighting how many do not pay heed to what's going on in one's hefty loans.

 

[hetherington]

@pawello Thanks for sharing this.

How did you ask bank to adjust prepayment against the principal? And if you do not ask, it goes towards both interest and principal?

Also, did you have to pay any amount for preclosing the loan?

 

[thorpe]

@hetherington As far as I know, if the part payment amount is greater than 3 months EMI, then it’ll be automatically reduced from the principal (that’s what the HDFC guys told me 4 years back). Else it’ll reduce the tenure.

 

[pawello]

@hetherington

1. Their form mentions this. You just tick the right box
2. Nope. That is the primary reason I chose HDFC. Others, mainly PSBs, levy a fee everytime you prepay.

 

[elliot44]

@pawello Hdfc limited (NBFC) which funded your loan was following NHB rules.

However banks are not allowed to charge prepayment charges for floating rate home loans as per RBI directive.

In most Bank loan cases prepayment is simple. Just NEFT/A2A to the loan account no. No communication required.

I have squared off one loan (property sold) and am prepaying another with different PSB's. Zero prepayment chgs.

Dear Customer, Your loan A/C XXXXX Credited INR ---.00 on 99/99/99,deposit transfer from Mr. ----------.-SBI. Download YONO

 

[noface]

@pawello

PSBs, levy a fee everytime you prepay.

Not true

 

[hetherington]

@pawello Oh okay. Thanks for this!

 

[oregonnowandthen]

@pawello

Others, mainly PSBs, levy a fee everytime you prepay.

how much it is? on avg

 

[pawello]

@oregonnowandthen It's entirely arbitrary as far as I know. For instance, Canara Bank charges 999 + GST.

 

[pawello]

@_smartz, @profmaliki, please approve.

 

[natalijaasbj]

@pawello Can you please update your post to include prepayment calculator from emicalculator.net

That will help everyone.

 

[pawello]

@_smartz, @profmaliki, request you to please lock this thread. Thanks.

 

[partypooper98]

@pawello Eli5, interest rates on home loans are floating right??

 

[pawello]

@partypooper98 Not always. They can be floating or fixed, and are usually tied to repo rate. Mine was fixed.

 

[substatica]

@pawello One question - how were 75% of your EMI payments this year directed towards the principal?

 

[pawello]

@substatica Because of smaller principal outstanding, which is 11 lakhs at the moment. 8.35% on that amount comes to roughly 92,000.

 

[substatica]

@pawello Got it, thank you! Really insightful post

 

[natalijaasbj]

@substatica Try home loan emi prepayment calculator from emicalculator.net

You will understand how it works. The interest is calculated monthly on the remaining of the principal amount, which is, let's say, 2 lakhs towards the wnd of your loan, and emi is 20000. Means you pay approx 40000 interest and 2 lakhs principal. These numbers are random examples. Use the calculator to understand properly.