Which is the very best time to Prepay House Mortgage?

Which is the very best time to Prepay House Mortgage? Whether or not it’s throughout the first few years of mortgage tenure? Is it clever to speculate someplace somewhat than repay the mortgage? Are we actually saving the house mortgage curiosity by prepaying? Allow us to attempt to reply these questions by taking a easy instance.

Many people have residence loans and because of the current uptrend in inflation and rates of interest, most debtors are considering or in a dilemma of whether or not to prepay the house mortgage.

Which is the very best time to Prepay House Mortgage?

I do know a lot of you will have already a readymade reply to this query that if the mortgage is recent, then it’s legitimate to prepay. Nonetheless, what’s the alternative price of not paying a house mortgage and investing elsewhere? Is it equal to the house mortgage price or lower than that?

The aim of this publish is to focus on this chance price. This implies if you happen to make investments the lump sum somewhat than prepaying the house mortgage, then what needs to be your supreme break up?

Many randomly assume that if the house mortgage price of curiosity is 8% and in the event that they prepay excellent, then they are going to upfront save round 8% curiosity fee on the mortgage principal excellent. Nonetheless, it’s utterly MYTH.

It’s primarily as a result of in residence mortgage EMIs, your curiosity half often greater throughout the first few years, and afterward it should cut back drastically. Therefore, if you find yourself planning to prepay the principal, then what number of years left and what’s complete excellent curiosity it’s a must to pay throughout the mortgage tenure additionally issues.

For our instance, allow us to assume that the house mortgage quantity is Rs.1,00,00,000, the rate of interest is 8% and the tenure is 20 years. The EMI might be Rs.83,644. The overall curiosity you pay throughout the entire 20 years interval is Rs.1,00,74,561. If we mix each principal and curiosity, then in complete you’ll pay Rs.2,00,74,561.

Allow us to break up the entire tenure into every of 5 years of mortgage tenure to grasp what’s the alternative price of prepaying the house mortgage and which is much less nerve-racking.

You observed that throughout the first 5 years, you paid round 37% of the overall curiosity (Rs.1,00,74,561) and also you simply paid round 12% of the principal.

So the excellent stability to be payable is Rs.87,52,558 (principal) + Rs.63,03,362 (Curiosity) = Rs.1,50,55,920.

Now let’s assume a situation the place you’ve gotten Rs.87,52,558 in your kitty after fifth yr and also you want to repay the mortgage. So clearly for you, the saving is the curiosity a part of Rs.63,03,362.

How a lot this quantity of Rs.87,52,558 has to generate within the subsequent 15 years to offset Rs.63,03,362? It’s simply round 3.7% somewhat than the plain assumption of many as 8% saving!!

Similar means, if you happen to want to prepay after the top of the tenth yr, then these are the numbers it’s a must to contemplate.

You observed that by tenth yr, you paid round 69% of the overall curiosity (Rs.1,00,74,561) and round 31% of the principal.

So the excellent stability to be payable after tenth yr is Rs.68,94,062 (principal) + Rs.31,43,217 (Curiosity) = Rs.1,00,37,279

Now let’s assume a situation the place you’ve gotten Rs.68,94,062 in your kitty after the tenth yr and also you want to repay the mortgage. So clearly for you, the saving is the curiosity a part of Rs.31,43,217.

How a lot this quantity of Rs.68,94,062 has to generate within the subsequent 10 years to offset Rs.31,43,217? It’s simply round 3.82% somewhat than the plain assumption of many as 8% saving!!

What if you happen to want to prepay the mortgage after the Fifteenth yr? Under is the standing of the mortgage after the Fifteenth-year completion.

You observed that throughout the eleventh yr to Fifteenth yr, you paid round 91% of the overall curiosity (Rs.1,00,74,561) and 58% of the principal.

So the excellent stability to be payable is Rs.41,25,190 (principal) + Rs.8,93,448 = Rs.50,18,639

Now let’s assume a situation the place you’ve gotten Rs.50,18,639 in your kitty after Fifteenth yr and also you want to repay the mortgage. So clearly for you, the saving is the curiosity a part of Rs.8,93,448.

How a lot this quantity of Rs.50,18,639 has to generate within the subsequent 5 years to offset Rs.8,93,448? It’s simply round 4% somewhat than the plain assumption of many as 8% saving!!

That is yet another solution to show that paying the house mortgage throughout the first few years is much better and fewer nerve-racking alternative price than suspending your own home mortgage compensation on the newest stage of the house mortgage.

Notice – To do additional calculations by yourself and to obtain the free Excel calculator, you possibly can consult with our publish “Prepay House Mortgage Calculator – Obtain Free Excel Sheet“.