Home loans are a long-term commitment that can take up a significant portion of your income and savings. However, you can reduce your home loan burden by making part payments whenever you have some extra funds. Part-payment means paying a lump sum amount towards your home loan principal, over and above your regular EMIs.
But how does part payment affect your home loan? Does it reduce your EMI or your tenure? Which option is better for you? Let’s find out.
How Part Payment Works?
When you make a part payment, you reduce your outstanding loan principal. This means that you have to pay less interest on the remaining loan amount. Depending on your preference, you can choose to either reduce your EMI or your tenure.
Reduce EMI: If you opt to reduce your EMI, your monthly installment will go down, but your loan tenure will remain the same. This will reduce your monthly cash outflow and free up some funds for other expenses or investments. However, you will end up paying more interest over the loan period, as the tenure is not shortened.
Reduce Tenure: If you opt to reduce your tenure, your EMI will remain the same, but your loan period will be shortened. This will help you close your loan faster and save on the total interest cost. However, you will have to continue paying the same EMI every month, which may affect your liquidity and budget.
Which Option is Better?
The answer to this question depends on your financial goals and situation. Here are some factors to consider before making a decision:
Income and Expenses: If your income is stable and sufficient to cover your EMI and other expenses, you may prefer to reduce your tenure and save on interest. However, if your income is uncertain or variable, or you have other financial obligations, you may prefer to reduce your EMI and ease your cash flow.
Tax Benefits: Home loan interest and principal payments are eligible for tax deductions under Section 24 and Section 80C of the Income Tax Act, respectively. If you reduce your EMI, you will also reduce your tax benefits, as the interest component will go down. However, if you reduce your tenure, you will retain your tax benefits, as the interest component will remain the same.
Opportunity Cost: If you have some extra funds, you can either use them to make a part payment or invest them elsewhere. The opportunity cost is the difference between the returns from the investment and the interest saved from the part payment. If the returns are higher than the interest, you may prefer to invest the funds and reduce your EMI. However, if the interest is higher than the returns, you may prefer to make a part payment and reduce your tenure.
If you're looking to ease your home loan burden, Finfinity offers flexible home loan options that allow you to make part payments, reduce your EMI, or shorten your loan tenure. Plus, with our home loan balance transfer service, you can switch to lower interest rates and better terms, helping you save on interest and manage your finances more effectively. Whether you're starting a new home loan journey or seeking to optimize an existing one, we're here to support your financial goals every step of the way.
.png)