Prepaying Your PNB Home Loan? Here’s What You Should Know | Popgen Tech

And with the RBI increasing the repo rate by 40 basis points, you prepay yours PNB home loan it seems the most convenient thing to do. But is he? Read on to find out how to manage your home loan and the long-term effects of prepayment.

Impact Of Increased Interest Rates On Loan Repayment

PNB Housing offers home loans at variable interest rates linked to its benchmark interest rate, the PNBHFR. The prevailing market conditions again influence this reference rate.

Therefore, an increase in the repo rate can have the effect of increasing your home loan interest rates. In such cases, you will have to increase your EMI or tenure to meet the additional financial obligation.

Both cases will result in more interest payment. However, your interest will be much higher if you increase your tenure while maintaining the same EMI. One way to reduce the impact of an interest rate increase on your loan is to prepay the loan.

Prepayment Options When Interest Rate Rises

In the event of an interest rate increase, prepaying your loan in part can help you avoid incurring extra interest over the term of the loan.

You can readjust your partial advance PNB home loan liability in different ways. One option is to keep the EMI the same with prepayment, and the second is to keep the tenure the same with prepayment. Let’s look at the impact of both options.

Keeping The Same EMI

You can ask the lender to calculate the prepayment required to keep your EMI the same even with the new interest rate. You will also notice a reduction in tenure if you choose this option.

Keep the Same Mandate

Let’s say you want to repay the total interest equal to the original loan amount in the same tenure. In that case, you should be prepared with a higher upfront payment than in the first option. However, you will get the benefit of reduced EMI size.

Is There Any Prepayment Fee of PNB Home Loan?

PNB does not charge any fee for prepayment of loan sanctioned on variable rate of interest. Therefore, you can partially or fully prepay your loan at any stage without worrying about the costs if you have extra funds available with you.

There are no fees for a fixed rate loan if you prepay the loan from your sources. However, PNB charges 2% for moving your home loan account to other banks or financial institutions.

When To Go For Prepayments

A benefit of the home loan is that it helps you save tax on both the interest and the principal repayment. This can be a big relief, especially for people in a higher tax bracket. However, the benefit is limited to Rs 2 lakhs of interest payment per financial year. Any interest payment above the stipulated amount does not attract tax benefits.

So if you have high ticket loans with significant interest, it makes sense to make partial prepayments to reduce the outstanding balance to the optimal level. This way, you can make the most of the tax benefits.

When Not To Go For Prepayments

If your loan is of a smaller amount and you prefer tax savings, you don’t have to rush to prepayment. Also, if you and your spouse are both enjoying tax benefits separately, you can continue the loan amount even if it is greater.

Moreover, you can generate higher returns in the market by investing your excess amount in high yielding investments like equities. If you have a high risk appetite, you may be better off investing than prepaying your home loan. But only take this route if your income and cash flows are not under stress and yours home loan interest rate is not unusually high.

Final Words

To be debt free can be happy but also a difficult feat to achieve. Therefore, it is necessary to find a balance before rushing into anything. Make sure you have adequate emergency funds and health insurance to cover you during hardship before making a down payment. Due to the uncertainty of the work of the market, experts advise to save at least the cost of a year in the emergency corpus. The remaining balance can go towards prepaying your PNB home loan.