Home Loan prepayment: Can you prepay Rs 5000/month? 5 important points

Home Loan prepayment, especially during the initial years of the loan term, is considered a smart way to reduce the interest outgo. For instance, a calculation shows that by saving just Rs 100 per day for prepayment of a home loan, a borrower can save about Rs 12 lakh of interest on a Rs 50 lakh loan of 20 years at a 9.5% rate.

Similarly, by paying just 5% of the loan balance every year, a borrower can close a 20-year home loan in just 12 years. However, when it comes to how much amount one can prepay and other rules related to it, there is a lot of confusion among borrowers. FE PF Desk got in touch with Atul Monga, CEO and Co-Founder of Basic Home Loan, to find some answers. The following are edited excerpts of what he said.

Can I prepay Rs 5000/month?

One can prepay a minimum amount equivalent to one EMI, generally. This may vary from bank to bank. But, there are no prepayment charges. One can also make regular prepayments every month.

Also Read: Should you prepay your home loan or invest for higher returns?

Is it beneficial for a customer to make small prepayments every month?

Yes, if one has surplus funds, it is beneficial to make small prepayments as there are no prepayment charges; overall interest paid on a loan reduces and the loan is cleared faster.

Do banks allow monthly/quarterly/half-yearly or annual prepayment?

Yes, banks allow monthly/quarterly/half-yearly, annual prepayment or even at irregular intervals without any charges. Generally, the bank provides the loan amount with an option of prepayment but it is better to check the terms and conditions before opting for the loan.

What is the minimum amount one can prepay?

The minimum amount one can prepay depends on the loan amount and the repayment terms. One can prepay as low as Rs 100 without any prepayment charges. Generally, the minimum amount one can prepay would be the sum of monthly instalments.

Also Read: Smart ways to manage a longer tenure loan

What should a customer do if a bank refuses prepayment of small amounts?

Ideally, banks do not refuse any prepayments and many banks now have online prepayment systems. But if they do, the customer should read the loan terms to confirm whether or not prepayment of any amount is allowed as per the loan agreement.

If the loan agreement does not state any such restrictions, the customer may take up the issue with the concerned bank officials for clarification or one could reach out to or lodge a complaint with Banking Ombudsman, RBI.

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