Imagine you are on a road trip. You have planned the route, mapped out the pit stops, and are ready to cruise. But what if you suddenly find a shortcut to your destination? Would you not take it? Likewise, when it comes to Loans Against Property, prepaying or foreclosing them can feel like finding that shortcut to financial freedom.
Loan Against Property is popular for expenses like business expansion, higher education, or medical emergencies. But like any Loan, repaying means regular equated monthly instalments that stretch over the years. Is there a way to speed things up? Yes! You can prepay or foreclose your Loan, but you should know a few things before hitting the accelerator.
What is prepayment or foreclosure?
Prepayment means paying off a portion of your Loan Against Property Loan before the scheduled EMI cycle. Depending on your preference, this reduces your overall Loan tenure or lowers your EMI burden. Think of it as adding extra fuel to your car, helping you reach your destination faster.
Foreclosure means paying off the entire outstanding Loan amount in one go, essentially ending your journey early. It is like finding an expressway that takes you straight to your destination without any stops.
Why prepay or foreclose your LAP Loan?
- Save on interest costs: A LAP Loan typically has a longer tenure (up to 15 to 20 years) and higher Loan amounts. This means you end up paying significant interest over time. Prepaying or foreclosing reduces the interest burden.
- Financial freedom: Once your Loan is paid off, you can redirect your income towards savings, investments, or other goals.
Things to keep in mind
Before you start writing those cheques, consider these factors:
- Prepayment charges: Some lenders impose fees for prepaying or closing a Loan Against Property, especially for Loans with fixed interest rates. Check your Loan agreement to understand the charges.
- Liquidity concerns: Ensure that prepaying or foreclosing does not drain your savings. Always maintain an emergency fund for unforeseen expenses.
- Timing is key: Prepaying during the initial years of your LAP Loan saves more on interest since most interest is charged in the early tenure.
Is it always the right choice?
Prepaying or foreclosing a Loan Against Property is not always the best move. If your LAP Loan has a low interest rate and your funds can fetch higher investment returns, staying on track with the EMI might be better. Similarly, if prepayment penalties outweigh the savings on interest, you should reconsider.
Conclusion
A Loan Against Property is like a financial journey with a clear road map. Prepaying or foreclosing is your shortcut, but only if you have planned it well. Consider your financial situation, calculate the costs, and make an informed decision. After all, besides reaching your destination, enjoying the journey is important as well.
