What is Part payment in Home Loan? Know the Uses and Benefits - PNB Housing Finance (2024)

Summary: Part-payment of a Home Loan means repaying a portion of the loan before its tenure is over. Read on to know its uses and benefits.

A part-payment on Home Loan means paying back a considerable portion of the Home Loan amount before the completion of its tenure. For instance, you have taken a home loan for Rs 20 lakh and are supposed to repay it over 30 years (the tenure). You pay an upfront lump sum of Rs 1 lakh and then make regular payments as per the loan agreement till the end of your term. However, you may find yourself in a situation where you make some windfall gains, and want to reduce your liability earlier by paying back a bigger part of the principal amount. You can make a Home Loan part payment or partial repayment of the home loan. This will lessen your total interest burden, and you can reduce your EMIs (Equated Monthly Instalments), or have a shortened repayment tenure as well.

The borrower can make a housing loan partial repayment in several ways. Contact your preferred financial institution to know what options they have for home loan part payment.

Are Part Payment and Prepayment the Same Thing?

A part payment for a home loan is when you pay back a part of what you owe on your home loan, and prepayment is when you completely clear your loan.

4 Advantages of Part Payments in A Home Loan

1. Reduces Interest Burden

The monthly amount payable (EMI) is calculated based on the Home Loan interest rates charged by the lender plus the base rate. The EMI you pay contains two components: principal amount and interest. When you make a part payment on Home Loan, the amount goes towards the principal amount. This reduces the interest burden and hence the EMIs you pay.

Must Read: How to Reduce Your Home Loan Interest Burden (4 Simple Tips)

2. You Can Reduce the Tenor of Your Home Loan

People consider making prepayments whenever possible to close their home loans early. When you make a part-payment, you can choose to maintain the same tenure and reduce your EMIs or to maintain the same EMI and shorten your loan tenure to pay off the Home Loan sooner.

3. It Can Improve Your Credit Score

Prepaying your home loan will reduce your credit burden and have a positive effect on your credit score.

4. Become Debt Free

It’s wise to prepay whenever you have extra funds. This way, you can reduce the interest rate and tenure and become debt-free sooner.

When to Make a Prepayment for Maximum Benefits?

During the initial stage of the Home Loan, the major component of your EMIs goes towards paying off the interest. As the term passes, this situation reverses, and the EMIs go toward the principal amount. Making prepayment in the initial phase helps cut down interest substantially and helps you save more.

Must Read: Is Prepayment of Your Home Loan a Good Idea?

Conclusion

Home loan part payment is an excellent way to save interest and reduce tenure. Although foreclosing a loan may not be a good idea as you will have to let go of any government tax benefits you enjoy year in the year on your home loan repayment. Hence, it is recommended to go through all the terms and conditions before making a decision.