Can We Part-Pay HDFC Home Loan?

Taking a home loan is a major financial commitment that allows you to purchase your dream home without having to save for years. While the equated monthly instalments (EMIs) make repayment manageable, you may have surplus funds at certain points that can be used to prepay the loan. This raises the question – can you part-pay your HDFC home loan?

The answer is yes, HDFC Bank allows borrowers to make part-prepayments on their home loans. This can help reduce your interest burden and loan tenure. However, there are certain factors you must consider before opting for part-payment.

How Does Part-Payment of Home Loan Work?

• Part-payment or prepayment refers to paying over and above your monthly EMI amount. This helps reduce the outstanding principal, thereby reducing the interest outgo and tenure.

• For HDFC home loans, there is no minimum amount you can pay as a down payment. You can pay as much as you want.

• You can make the part-payment online through Netbanking or visit the nearest branch for offline payment. Cash, cheque, and demand draft options are available.

• Every part-payment will proportionately reduce your home loan tenure or EMI. However this will not happen automatically. You have to intimate HDFC to revise your repayment schedule.

• No matter how much money you have, you can make part-payments on a regular basis or all at once. HDFC does not levy any restriction on the frequency.

Benefits of Part-Paying Your HDFC Home Loan

Here are some major benefits of making prepayments on your home loan:

• Reduces Interest Outgo – Since the principal outstanding reduces, you end up paying lower interest. This directly reduces your overall interest outgo.

• Shortens Loan Terms—Making partial payments shortens the term of your loan, so you can pay it off faster than the original term.

• Saves on EMIs: If you want, HDFC can lower your EMI amount after a part-payment. This can make repayment more affordable.

• Saves Money – Prepayments directly reduce your overall interest outgo, helping you save money.

• Better Credit Score – Making timely prepayments reflects positively on your credit report. Your score can improve.

• Tax Benefits – You can claim tax deductions on the principal prepaid, up to Rs 1.5 lakhs per financial year.

Things to Know Before Making a Part-Payment

While part-paying your home loan seems attractive, there are a few things you must know:

• Prepayment Charges – HDFC levies a 2% prepayment penalty if you refinance for part-payment. No charges applicable for own funds.

• Outstanding Loan Term – Benefits are higher if you part-pay during the initial years when interest component is higher.

• Revised EMI – Inform HDFC if you want your EMI reduced based on part-payment. It won’t happen automatically.

• Surplus Funds – Ensure you have sufficient savings for other goals and emergencies before part-paying.

• Returns on Investments – Compare returns on other investments before using funds to part-pay at lower home loan interest.

• Tax Benefits – Evaluate the tax benefit you may lose when your home loan principal reduces.

When Does Part-Payment Make Sense?

You should consider making part-payments in the below cases:

• Receiving a windfall or bonus payout that is surplus to your needs

• Interest rate on home loan is high compared to investment returns

• Completed other key financial goals and have surplus funds

• Want to accelerate becoming debt-free

• Availed a home loan on higher interest rate, now rates have reduced

• Objective is to reduce EMI burden and ease cash flows

• Wish to improve credit score by showing disciplined repayment behaviour

• Looking to save tax by claiming deductions on principal repaid

However, being prudent with your finances should take priority over prepaying loans. Evaluate all factors carefully.

How Much Should You Prepay on Your HDFC Home Loan?

Deciding the part-payment amount can be challenging. Here are some tips:

• Aim for at least 20-30% of your outstanding principal if making a lump sum part-payment. Anything lower may not have a significant impact.

• Make smaller but regular part-payments if you do not have a large lump sum available. Even small amounts can help over the long term.

• Avoid prepaying so much that your savings and investments are depleted. Maintain a contingency fund.

• Try to make prepayments in the early years of your loan when the interest component is higher. This maximizes savings.

• Use online home loan EMI calculators to check the impact of different part-payment amounts on your overall interest and tenure.

• Seek advice from financial advisors if unsure about the ideal part-payment amount for your situation.

The decision to part-pay your HDFC home loan can seem complicated due to the various factors involved. However, if done in a disciplined manner after evaluating your finances and loan details, it can significantly accelerate your debt repayment journey. Ensure you have surplus capital available before opting for part-payment.