Whether banks and markets are anticipating a rise or a decrease in interest rates, it is primarily the Canfin Home Loan and Navi Home Loan borrowers who stand to lose or benefit the most from either outcome due to a large amount of money involved. That’s why making part-prepayments in a lump sum is one of the choices that borrowers can use to reduce their EMIs in the midst of this situation. For as long as the loan terms are on a floating-rate basis, this can help to reduce the total interest expense without incurring a penalty. A few issues should be taken into account while creating part-prepayment agreements, though.
Listed below are some tips and suggestions on how to obtain the most value out of part-prepayments in order to maximize your interest savings.
While picking between EMI and tenure reduction of existing Canfin Home Loan, there are two options available to home loan borrowers who desire to pay off a portion of their home loan early. Either they can lower their EMIs or shorten the length of time they have to pay back their house loan. Despite the fact that the second option would result in greater savings in interest payments, the decision to pick between the two should be made primarily on the basis of your available cash flow and financial circumstances.
If you took out a Rs 30 lakh Canfin Home Loan at a rate of 10 percent per annum over the course of five years, and the current balance is Rs 28.25 lakh, and the loan is still due, you would be eligible for a home equity loan, according to the guidelines. Your Navi Home Loan’s term will be lengthened by 5 years and 1 month if you make a lump sum prepayment of Rs 3 lakh at the end of the 5th year and elect to have your loan’s term lengthened.
You will save Rs 13.88 lakh in interest payments, and your loan’s term will be lengthened by 5 years and 1 month. If you decide to keep the loan for the same length of time, you will save Rs 6.96 lakh in interest savings alone. If you decide to keep the Canfin Home Loan for the same length of time, your EMI will drop from Rs 27,261 to Rs 24,365 each month. In the event that you are concerned that the rising interest rate environment may have an influence on your disposable income, you may want to consider decreasing your EMI payments.
Also, take into consideration the cost savings provided by HLBT.
While early repayment of Navi Home Loan might result in large reductions in net interest payments, doing so by redeeming existing investments can have a detrimental impact on your financial well-being in the long run. Instead, you can refinance your existing home loan and have it taken over by another lender at a lower interest rate through the use of a home loan balance transfer (HLBT) programme. Because of this, your interest payout will be lowered, but your liquidity and current assets will be unaffected by the reduction. For example, if you refinance your Navi Home Loan to another lender at, say, 9 percent p.a. for the remainder of the 20-year term, you will still be able to save around Rs 4.68 lakh in interest payments without jeopardizing your liquidity or present investments in the process. To make the best decision for you, assess the savings from part prepayments against the savings from a home loan balance transfer (HLBT) and make your decision depending on your liquidity and financial objectives.
Never withdraw money out of your emergency reserve until absolutely necessary.
This fund is primarily aimed in order to deal with financial exigencies or fulfilling required commitments during periods of unemployment or income loss due to disability, etc. At the absolute least, the amount of money in this account should be sufficient to meet your mandatory costs for at least six months during your absence. Any unplanned event that occurs in the future that causes you to use your emergency fund to make Navi Home Loan prepayments may lead you to take out loans at high-interest rates or sell your other existing investments at below-market prices in order to make up for a lost time. To avoid depleting your emergency fund while accumulating resources for making house loan prepayments, never deduct monies from your emergency fund.
Maintain control over your investments that have been set aside for critical financial objectives.
It is possible to think of your financial aims as the monetary expression of your life aspirations. Creating corpora to fund your child’s higher education or creating a down payment for your auto loan, loan against property, or other sorts of loan are some of the most common uses for trusts and other financial instruments. If you redeem existing assets that were intended for such objectives, you may find yourself in a position where you are compelled to take out costly loans in the future. Furthermore, in order to get approval for a loan, many lenders want you to put down a specific amount of money as margin money or a down payment. Obtaining those loans may be made more difficult if you redeem the investments that were set up for such down payments or pay the margin money that was required, just like in the case of Canfin Home Loan.
Take into account the profits earned by other types of investments as well.
Although Navi Home Loan has amongst the lowest interest rates of any retail lending product, their rates are often higher than the rates on most fixed-income investments and savings accounts, despite the fact that they are the least expensive. This means that excess funds held in fixed income products such as fixed deposits, bonds and other similar instruments that are not intended for any particular financial goal may be redeemed for the purpose of making prepayments. However, when it comes to long-term returns on equity investments, they tend to surpass the interest rates on home loans by a wide margin throughout the course of the investment.