Benefits of Making Part-Payments Towards Your Home Loan

Making a partial payment on your home loan means paying part of the loan before the full repayment period ends. This can be helpful in reducing your debt. The benefits of part payment on home loans are that it can either lower your monthly payment or shorten the time you take to repay the loan. Either way, it helps you save money on interest. As long as your lender allows it, all home loan holders can choose to make partial payments. You can check if your lender offers this option when you apply for a home loan.

In simple terms, prepaying your home loan means paying off your loan earlier than planned. This helps lower the interest you pay over time, which is one of the key benefits of making part payments on home loans. However, there are more advantages beyond just saving on interest, as explained below.

Lowering Interest Payments

Home loans are typically long-term, often spanning 15 to 20 years. Over this time, you end up paying a lot of interest. If your interest rate is higher than the average, the total interest could be really high. Making a part payment on your new home loan can shorten the loan term and reduce the amount of interest you will pay.
For example, consider a Rs. 50 lakh loan at 10% interest for 20 years (240 months).
Regular EMI: Around Rs. 42,000.
Total Interest: About Rs. 50 lakhs over the period.

If you make a Rs. 2 lakh partial payment every year:
After 5 years: You will have paid an additional Rs. 10 lakhs (Rs. 2 lakh x 5 years).
This amount goes straight to reducing the principal.
Impact: Your remaining loan balance becomes much lower.

Result: If you keep your EMI the same, your loan may end up 3 to 4 years earlier. If you lower your EMI, your monthly expenses decrease, but you still save a lot on interest. This is how part payments can reduce your home loan tenure.

You Can Explore Other Financial Options

We often focus on the present and forget about the future. If your home loan continues until it is fully repaid, you may not have enough time to save for retirement. Therefore, it's wise to pay off your loan earlier with proper planning. After retirement, your active income will stop, and if you don’t have enough savings, it can be hard to live comfortably. This is another benefit of making part prepayments on your home loan.

You Can Take More Loans

Once a large home loan is repaid in part, you may be able to take smaller loans as well. Having a home loan can limit your options when applying for personal loans or car loans. If you have fewer or no existing debts, lenders are more likely to offer you a larger loan amount.

When deciding when to prepay home loan, it's best to start with a small payment early in the loan period and increase it gradually every year at a steady rate. Save money throughout the year and use it for prepayment. You can also make a specific amount towards your principal every year along with your regular EMI. Plan your budget and save a certain amount each year to use for prepayment.

When making a part payment on your home loan, tenure reduction helps maximise interest savings and become debt-free faster, while EMI reduction provides immediate monthly financial relief and improved cash flow. The ideal choice depends entirely on your personal financial situation and goals.

Choose Tenure Reduction if you have a stable income and can comfortably maintain your current EMI amount. This strategy helps you save a substantial amount on total interest and reach debt-free status years earlier. Choose EMI Reduction if you are experiencing financial instability, anticipate future major expenses, or need more disposable income monthly for other investments/emergency funds. This provides a necessary safety net and flexibility in your budget.

Although home loans are long-term financial commitments, prepaying them will help you save a substantial amount of the interest outgo. However, avoid using emergency funds set aside for medical treatment, hospitalisation, life covers, etc. If you fall short on the emergency funds, apply for a Personal Loan. Do not liquidate your investments, such as savings for your children’s education, higher studies, marriage, savings for your old age, etc., to prepay your Home Loan.

Making part payments on your home loan can help you save on interest, but doing so by using your investments or emergency funds can harm your financial health. Instead, consider using extra money saved in fixed-income products like fixed deposits or bonds for prepayment. You can also use money that hasn’t been allocated for a specific purpose.

At Niwas HFC, you won’t be charged any part prepayment or foreclosure fees for a home loan with a floating interest rate, as long as you use your own funds. For loans with a fixed interest rate, there may be specific charges if you prepay during the fixed-rate period. You should check your loan agreement or visit the Niwas HFC website for more details.

Additionally, making partial payments earlier in the loan period makes it easier to decide when to prepay home loan. This is because the interest portion of your EMI is higher in the early years, so you save more on interest. For specific terms and procedures related to your loan, it is recommended to review your loan agreement or contact our representative for further assistance.