When managing your home loan, your repayment strategy can significantly impact your financial future. Many home loan borrowers face the difficult decision of either prepaying their loan or reducing their monthly payments. Both methods have advantages; the best choice is based on your financial goals. This blog will look at both options to help you decide which is best for you, with Aditya Birla Home Loan as a reference point.

Understanding Prepayment

This prompt payment is made on your home loan, and it is over and above the usual EMIs you make. It also enables you to devise a way to minimise your loan’s principal balance. This leads to a decrease in interest costs in the long run and thus enables you to clear your loan earlier.

Advantages of prepayment:

  1. Interest Savings: The earlier you prepay, the greater the savings on interest. This is because home loan interest is on the outstanding principal. A lower principal means a lower interest outflow.
  2. Faster Loan Tenure: If you want to clear your loan immediately, prepayment is the way. It can significantly reduce your loan tenure.
  1. No Impact on EMI: Your monthly EMI stays the same. However, reducing the principal reducesthe total number of EMIs.

However, you should check with your lender to see if there are any prepayment penalties. Some lenders may charge a fee if you prepay a significant amount.

Understanding EMI Reduction

Decreasing EMI, on the other hand, refers to reducing your EMI every month that you make a prepayment. Do not request your lender to shorten the loan term; instead, request a reduction of your EMI. This option is the most suitable when one needs to create space for other goals and objectives in their monthly cash flow.

Advantages of EMI Reduction:

  1. Reduced monthly burden: Lowering your EMI frees up cash for other investments, expenses, or savings goals.
  2. Easier Budgeting: Lower monthly outflows make it easier to manage finances, especially for those with fluctuating income or other financial commitments.
  3. Maintain Loan Tenure: This option is ideal for those who want to reduce monthly payments while maintaining their loan tenure.

Which Strategy Should You Choose?

The decision between prepayment and EMI reduction largely depends on your financial priorities. Here are some questions to consider:

Want to become debt-free sooner? Prepayment is the better option to close your loan early and save money on interest.

Do you want more cash flow flexibility? EMI reduction may be the right option to have more monthly disposable income.

Calculate The Impact Of Each Option

Aditya Birla Capital provides a home loan eligibility calculator to help you determine your loan affordability and repayment options. Using such tools, you can understand how prepayments or EMI reductions affect your financial picture.

Choose a home loan repayment strategy that fits your finances at Aditya Birla Capital. Use their home loan eligibility calculator to make an informed decision and achieve financial stability.

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