5 Things To Consider While Prepaying Your Loan Against Property

India has the fastest-growing and most promising economy in the entire South-Eastern Asia region.

With the largest youth population in the world, both the investment and lending sector of the nation’s economy is thriving. Both secured and unsecured credits including various types of mortgage loans have seen huge demand in recent years thanks to the substantial loan amount, secured financing option, and zero end-user restriction.

Secured Loans In India

  • 70% of all financial institutions in India offer some form of a secured loan, making it one of the most common financing options in India.
  • 33% increase in the approval rate (for this type of secured lending) was witnessed across the market in the Fiscal Year 2017-2018.

Affordable interest rates, longer repayment tenor, and various other borrower-friendly policies allow an individual to benefit significantly through these types of property loans.

Moreover, the provision to part-prepay or foreclose such a credit also offers a chance to pay off the debt before its tenor, freeing valuable funds and helping an individual increase his or her credit score.

However, prepaying a loan against property includes various steps, and every borrower should consider a few important aspects before planning to foreclose their line of credit.

It will help them fetch the optimum value when closing the credit before its due date. Let’s take a look at a few things one should consider while prepaying a secured loan.

  • Reduction in EMI or Tenor?

Prepayment in loan against property allows a borrower to either lower their payable EMIs, or applicable loan tenor. Every borrower should carefully select the avenue which will best benefit them according to their financial profile.

For example, an individual willing to save a substantial amount of funds during the loan tenor should opt for tenor reduction while prepaying their credit. 

Contrarily, individuals who do not want to leave any impact on their disposable income should opt for EMI reduction, as it lowers the payable sum for every month. It is one of the most important things one should know before applying for a loan against property or prepaying the debt.

  • Liquidating Existing Investments

Financial experts’ advice borrowers not to utilise any of their existing investments to part prepay or foreclose credits like loan against property. Existing investments are essential to reach financial independence and other monetary goals; dissolving such savings will necessitate additional lines of credit for that purpose later on one’s life.

It such situations, it is advised to make smaller prepayments towards the credit to prevent stretching one’s finances. 

Companies allows loan prepayments that is equal to or more than one EMI’s amount with a nominal processing fee, ensuring maximum benefit for a borrower.

They also provide pre-approved offers that simplify the application process of such credits and help a borrower save time while availing them. Such offers are applicable on both secured and unsecured credits, including home loans, personal loans, business loans, etc. as well as on numerous other financial products. You can check your pre-approved offer online by sharing only some essential details.

  • Returns Earned From Various Sources

Mortgage loan come with some of the lowest interest rates amongst all other types of lending options. That keeps the EMI within an affordable amount, helping a borrower utilise other avenues of income to accumulate a prepayment corpus.

There are several investment options that allow for greater returns than secured loan interest rates. Mutual Funds and equity investments usually beat the interest rate by a substantial amount, especially if the investment is carried for a longer-term. This allows for capital appreciation over investment which can be utilised to prepay the debt.

  • Balance Transfer Facility can be Beneficial

Secured credits like loan against property allow balance transfer facility, where a borrower can transfer their line of credit to a different financial institution to avail a lower rate of interest. It can lower the total payable amount, which will ensure easier repayments and zero defaulting.

However, a borrower should compare the benefits of a balance transfer facility before availing such service. Usually, lenders charge some form or transfer fee for such facilities, which can increase the total payable amount. It is necessary to compare the savings generated from the balance transfer beforehand.

  • Find the Balance Between Interest & Principal Component

It is necessary to part prepay or foreclose the credit only when there is a suitable balance between the interest and principal component. Usually, the EMI consists of primarily the interest component at the start of repayment tenor, which changes over to the principal component as tenor continues. Ideally, one should determine the ideal tenure for loan against property and prepay when they benefit the most.

Considering the above mentioned factors before prepaying a credit is necessary, as it can help a borrower improve their creditworthiness by a significant margin. One can also save a considerable amount of money by adhering to all these aspects.

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