Part Payment of Home Loan: What Exactly is it?

There might occur certain circumstances where some unexpected financial gains come your way. This may prompt you to consider reducing your liability by making a substantial repayment towards the principal amount of your home loan. This is known as a home loan part payment. It is also usually termed as partial repayment of the home loan. 

By choosing this option, you can alleviate the overall interest burden and potentially decrease your EMIs or even shorten the repayment tenure. It offers a viable means to manage your home loan more efficiently, providing financial flexibility and potential savings in the long run. In this blog, we’ll talk about home loan part payment and its benefits:

What is Part Payment of a Home Loan?

When you make a part payment of home loan, it refers to repaying a specific portion of the loan before its duration is completed. Let us say you have obtained a home loan amounting to Rs 20 lakh, intended to be repaid over a period of 30 years (the tenure). If you decide to make an upfront lump sum payment of Rs 1 lakh, in addition to regular payments as per the loan agreement, you will be able to reduce the outstanding balance and potentially save on interest charges.

Benefits of Part Payment of Home Loan 

Here are some of the benefits of part payment on your home loan:

• Decreases Interest Load

The monthly payment, known as EMI, is determined by the interest rates imposed by the lender and the base rate on your home loan. The EMI consists of two components: the principal amount and the interest. By making a part payment of home loan, the funds are allocated towards reducing the principal amount. Consequently, this reduces the burden of interest and consequently lowers the amount of EMIs you are required to pay.

• Reduces the Duration of Your Home Loan

Many individuals contemplate making prepayments whenever feasible in order to expedite the complete repayment of their home loans. When you opt for a part-payment, you have the flexibility to either maintain the same loan tenure while reducing your EMIs or maintain the same EMI amount while shortening the duration of your loan. This enables you to pay off your home loan earlier and enjoy the benefits of a reduced repayment timeline.

• Increases Your Credit Score

This is one of the best advantages of part payment. By making prepayments towards your home loan, you effectively decrease your credit burden, which can positively impact your credit score. This responsible financial behaviour showcases your ability to manage your loan obligations effectively, ultimately improving your creditworthiness.

• Freedom from Debt

When you find yourself with surplus funds, it is prudent to consider making prepayments. By doing so, you can effectively reduce your loan's interest rate and tenure, ultimately leading you to become debt-free at an accelerated pace. Taking this proactive step enables you to minimise the financial burden and enjoy the freedom of being debt-free sooner rather than later.

Conclusion 

Part Payment of home loan can avail you a bunch of benefits. However, you must be sure that you make an informed choice that goes well with your financial goals and ensures maximum benefits. Remember to carefully consider and evaluate all your options and make the most effective use of your resources while managing your home loan efficiently.