Hi, I need expertise opinions from people here who have handled home loans... I took a home loan from HDFC for 10 yrs. I have already paid EMIs @ 8% for the past 4yrs. Now I have some cash in hand with which I can repay about 50% of the balance principal to be repaid. HDFC has a penalty for repayment of the principal since the lending period would come down. Is it worthwhile to repay a portion of my principal and get the further EMIs / repayment years reduced?
Hey Shakthi, I am not an expert on home loans, but just sharing a few info I know about it. My brother back in India had a homeloan with HDFC (the same 8% rate). He recently got a job in ICICI, where they offered to transfer his loans for a lesser percentage (@ 4% for their employees). I know he got it tranferred, but HDFC's penalty charges were absorbed by ICICI. In your case, calculate the interest percentage for the reduced EMI or loan years that you would get by making a repayment. Inspite of the penalty amount, if that is going to be drastically less (more than 50%) compared to interest percentage you would incur for the entire loan period, it's definitely worth repaying.
Like Jyoti said, it should be a pretty straight forward calculation: A - How much interest would you save by prepaying? B - How much penalty would you incur by prepaying? If A is greater than B, prepay. Otherwise, let the loan run its natural duration. Glad that you are in a position to prepay.
