Foreclosure of a loan is a procedure where the borrower repays the entire outstanding loan amount before the tenor ends. Foreclosure considerably lessens the interest outgo and makes an individual get rid of debt quickly. Usually, lenders allow foreclosure only after a certain period into loan repayment.
When it comes to home loans, borrowers can easily choose foreclosure after paying a few EMIs. To compute the amount due, one can use a free home loan foreclosure calculator available online.
How does the home loan foreclosure calculator work?
The home loan foreclosure calculator helps borrowers determine the amount they can save from prepayment. This calculator is quite simple to use. Users need to input some details of the loan which includes the following:
- Loan amount
- Tenor
- Rate of interest
- Instalments paid
- Amount of prepayment
Once the user enters the above-mentioned details, they just need to click on the ‘Calculate’ button to see their interest savings from loan foreclosure or prepayment.
What are the factors to consider while opting for a housing loan foreclosure?
Mentioned below are the essential factors borrowers need to keep in mind while opting for home loan foreclosure or prepayment:
- EMI payments
Equated monthly instalments (EMIs) are designed to curb the financial stress on the shoulders of borrowers and help them repay the amount of the loan over a pre-determined tenor. However, if paying EMIs out of the monthly income is hampering the savings of a borrower, he/she can opt for foreclosure of the loan.
- Tax benefits
Availing a housing loan enables borrowers to claim some tax deductions on the principal amount and repayment of interest under the Income Tax Act, 1961. However, if borrowers opt for the foreclosure of their home loan before the end of the tenor, they might not get the tax benefits. So, when opting for foreclosure, it is advisable to evaluate whether they can afford to forgo the deductions.
- Calculate expenses
While planning to opt for home loan foreclosure, borrowers must consider the short-term and long-term expenses. Furthermore, they must remember their retirement plans, contingency savings, children’s education, etc. Also, they should make sure of having substantial funds to foreclose or prepay a home loan without hindering other expenditures. In addition, borrowers need to check and compare the foreclosure charges of various financial institutions.
- Timing
It is highly necessary to time the foreclosure of a home loan properly. For this, it is sensible to use a home loan repayment calculator to determine the best time to foreclose the loan as per the savings and financial strength.
- Age of borrower
If a borrower is retiring soon, it is sensible to use the housing loan foreclosure facility before retirement. Once the borrower retires and has no such fixed source of income, he/she is more likely to default on the home loan repayments.
What are the benefits of prepayment of a home loan?
Mentioned below are some notable advantages that borrowers can enjoy while opting for prepaying a housing loan:
- Saving considerably on home loan interest: Foreclosure helps borrowers save an ample amount of money on the rate of interest. They can even use this fund for other purposes as necessary.
- Ensures timely repayment of loans: While prepaying a large amount of credit, individuals can lower the monthly instalments and repay the outstanding amount effortlessly. This ensures timely repayment of the loan.
- Zero extra charges: Reputed lenders do not charge any extra amount for the prepayment of home loans. So, borrowers can save a considerable amount while prepaying their loans.
In addition, many reputed lending institutions give pre-approved offers to existing borrowers. These offers are mainly available on secured credit products such as LAP, home loans, and more. Applying for them hastens the overall lending procedure. Borrowers can check their pre-approved offers by simply entering their personal details.
Prepaying home loans help a borrower save a substantial amount compared to the repayment through a pre-determined loan tenor. Individuals planning to use the prepayment facility can utilise the home loan foreclosure calculator to get accurate results instantly. However, borrowers must check if the prepayment of a home loan can offer a sufficient return on investment.
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