10 Factors to Consider Before Prepaying Your Home Loan

Prepaying Your Home Loan (1)

Getting a house of your own is like a dream come true. The chances are that you may not be able to shell out the entire property amount from your accumulated funds or savings, and you may have to go for a home loan.

But there are times when you have steady employment and a good flow of income, wherein you may want to prepay your home loan in full or in part. This means paying off the remaining outstanding amount on your home loan.

When you pay the entire outstanding, it is referred to as foreclosure or prepayment of the home loan. Let’s explore ten major factors you must consider before you prepay your home loan.

10 Factors to Consider Before You Prepay Your Home Loan

Here are the top 10 factors that should be considered before home loan prepayment.

Don’t Use All Your Savings and Investments

It isn’t wise to use your hard-earned savings or to break your solid investments to repay your home loan. 

As long as you are earning, you can pay off your home loan through your steady income, but your savings are your biggest support post-retirement.

So it is recommended to utilize these funds for repaying your home loan.

Read the Fine Print

Before you make any extra payment towards your home loan, reading the blueprint and loan agreement is highly recommended.

Check the pros and cons of prepaying before putting extra funds into your home loan.

Consider Pre-Closure Charges

One of the most important considerations is to check out the hidden or pre-closure charges that many home loan providers charge you when you prepay your loan.

Beware of such charges and smartly calculate your next move.

Consider Giving up The Tax Benefits

Your home loan offers you tax benefits.

So, before you prepay or foreclose your home loan, you must understand that you may lose these benefits.

Would a Balance Transfer be a Better Deal?

Check out other financial institutions and see if transferring your home loan to another provider eases your debt and lowers your repayment schedule.

If yes, then you can invest your surplus funds in a solid source rather than using your surplus funds to repay your loan.

Is It Better to Invest than Paying Off Your Home Loan?

If you have surplus funds, you must assess the difference in your profitability. Analyse if the interest earned from your investments is higher than the interest you are paying toward a home loan.

If yes, then you must invest rather than pay off your debt.

Consider the Impact on Your Credit Rating

Paying off your debt has a positive impact on your credit rating.

However, you must check whether the same has been updated in your credit profile to get the advantage.

Always Use a Home Loan EMI Calculator Before Prepaying

Using a home loan calculator India helps you to assess and compare the difference between monthly EMIs before you make the prepayment and after you pay a part of it.

This will help you budget your EMIs well and estimate how much more you need to pay toward your home loan.

Consider How Long Your Employment Will Last

If you are nearing retirement, paying off your debts, especially the bulky home loan, is recommended. Post-retirement, it may not be easy to repay your debt with the limited funds you may be left with.

So, age, employment stability, and sources of income matter when considering repayment of a home loan.

Consider the Interest Rates

If there are chances of an increase in the interest rate in the future, then home loan prepayment is a practical move. 

But if it’s the opposite, you can just let the loan be and instead think about investing your surplus funds.


It is wise to look into minute details before you prepay or foreclose your home loan.

If you have extra funds and your sources of income are stable, steady, and strong, then it’s always better to pay off all your debts, including your home loan. However, using your entire savings fund on prepaying isn’t wise.

For guidance, consider these top ten factors and prudently proceed with prepaying your home loan.

Also check – How Prepayment Penalties Can Impact Home Loans?

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