Once in the picturesque valley of Kashmir, there lived a young couple named Shafi and Roohi. They had always dreamt of having their own cosy nest amidst the breathtaking landscapes. But their dream appeared unattainable owing to the rising prices of real estate. With complete determination, they decided to put their faith in a loan and applied for a Bank of Baroda home loan. They did this to turn their dream into actuality.
With the support of Bank of Baroda’s home loan, Shafi and Roohi purchased their dream home. The couple was excited but aware of the long road ahead of them. They understood the journey to owning their home in full was far from over.
Home loan prepayment – A smart choice
As they settled into their new home, Shafi and Roohi learned about the concept of home loan prepayment. Home loan prepayment involves making additional payments towards the outstanding loan amount, apart from the regular EMI. This approach helps reduce the loan tenure and save on interest payments.
To understand this better, Shafi and Roohi approached the Bank of Baroda and spoke with Mr Farooq, their loan officer. Mr Farooq patiently explained how prepayment works. For instance, suppose their outstanding loan amount was Rs 30 lakh, and they had a remaining tenure of 20 years. With regular EMIs, they would have paid a considerable amount as interest. However, if they opted for prepayment and paid an additional Rs 2 lakh every year, they could significantly reduce the tenure and save on interest.
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Benefits of prepayment
Intrigued by the idea of prepayment, Shafi and Roohi explored its numerous benefits –
Improved credit score
A timely prepayment would boost their credit score, paving the way for future financial opportunities. With an improved credit score, they could access better credit cards and loan offers.
Early debt clearance
Prepayment allowed them to clear the debt faster and become homeowners in a shorter span. With diligent prepayment, they could become debt-free in 15 years instead of 20.
Reduced interest burden
By prepaying the home loan, they would save on interest payments over the long term. For example, by prepaying Rs 2 lakh every year, they could potentially save several lakhs in interest over the loan tenure.
Being debt-free offered a sense of financial security, especially during uncertain times. Having no home loan burden would provide peace of mind during emergencies.
Reduced EMIs meant they could save more for their family’s future needs. They could create a substantial emergency fund or save for their child’s education.
Prepayment freed up their resources for other investments. They could explore various investment avenues, such as mutual funds or stocks, to diversify their portfolio.
No prepayment penalties
Bank of Baroda did not levy any prepayment penalties, making it an even more attractive option. Shafi and Roohi could prepay without worrying about any additional charges.
Prepayment helped them build equity in their property at a faster pace. As they reduced the principal amount, their ownership stake in the property increased.
The emotional burden of debt was reduced, bringing peace of mind to Shafi and Roohi. They could focus on their personal and professional growth without constant financial stress.
Power of surplus income
They could utilise bonuses or extra income to make prepayments and lessen the debt load. Any surplus income could directly contribute to prepayment, accelerating the process.
With a reduced outstanding amount, they could be eligible for other financial products in the future. They could consider taking a personal loan or a car loan if needed.
Lower monthly commitments
As the outstanding amount decreased, their monthly EMI commitment was also reduced. This gave them more disposable income for lifestyle expenses or investments.
Interest rate risk mitigation
Prepayment could help them avoid future interest rate hikes. They could benefit from locking in a lower interest rate for a longer duration.
Home loan transfer ease
Prepayment made it easier to consider a home loan transfer to other banks with better terms. If they found another bank offering lower interest rates, they could explore transferring the loan.
Positive financial habits
It encouraged them to cultivate good financial habits for a secure future. Prepayment instilled discipline in their spending and saving habits.
Freedom to plan
Prepayment allowed them to plan other financial goals without the burden of a home loan. They could focus on saving for their dream vacation or renovating their home.
Prepayment allowed them to claim deductions under Section 80C for principal repayment. This helped reduce their taxable income, leading to potential tax savings.
Being debt-free earned them respect in their community. They became role models for others who aspired to achieve financial independence.
Customised prepayment options
Bank of Baroda offered them flexibility in choosing prepayment amounts. They could decide on the prepayment amount based on their financial situation.
A debt-free retirement was now a more achievable goal. Without the burden of a home loan, they could save more for a comfortable retirement.
With the home loan cleared, they could retire without financial worries. Their retirement funds could be used to pursue their interests and passions.
They could pass on their debt-free property as a valuable legacy to their children. It would be a source of financial security for future generations.
Building an asset
The property was now a valuable asset entirely in their name. They could use it as collateral for future financial needs if required.
Bank of Baroda’s support
The bank’s transparent and customer-friendly approach made prepayment a seamless experience. Bank of Baroda’s home loan team guided them throughout the process, ensuring a smooth and rewarding journey.
Prepayment instilled a sense of financial discipline in their lives. They learned to prioritise financial goals and manage their finances efficiently.
Strategies to prepay Bank of Baroda home loan –
With the benefits of prepayment firmly in their minds, Shafi and Roohi devised a ten-point strategy to clear their Bank of Baroda home loan faster –
Yearly lump sum
Utilising annual bonuses or windfalls, they made lump-sum prepayments. For example, if Shafi received a year-end bonus of Rs 1 lakh, they promptly used it to prepay a part of the home loan.
They allocated a certain portion of their income exclusively for prepayment. They carefully analysed their monthly expenses and earmarked a specific amount for prepayment purposes.
Increase in EMI
As their income increased over the years, they opted to increase their EMIs and, thereby, prepayment amounts. If Shafi got a salary hike, they adjusted their EMI to a higher amount.
They rounded up their EMIs to the nearest higher amount and utilised the extra funds for prepayment. If their EMI was Rs 25,500, they rounded it up to Rs 26,000, channelling the extra Rs 500 for prepayment.
Whenever they had substantial savings, they made part-prepayments to reduce the principal amount. For example, if they received a gift of Rs 50,000 during a festival, they used it to make a part prepayment.
Extra income utilisation
Any additional income, such as rental earnings or freelance projects, was solely directed towards prepayment. They used the additional income earned from renting a part of their property for prepayment.
They explored refinancing options to avail better interest rates and save on interest costs. If other banks offered lower MCLR (Marginal Cost of Funds based Lending Rate), they considered refinancing their home loan.
They assessed the feasibility of transferring the loan to another bank offering lower interest rates. If they found a bank with a more attractive interest rate, they explored transferring their home loan to that bank.
They periodically reviewed their prepayment progress and made adjustments to their strategy as needed. They closely monitored their prepayment journey with the help of Bank of Baroda’s online tools and customer support.
Shorter loan tenure
When their financial situation improved, they opted to reduce the loan tenure to clear the debt quickly. As their income increased, they shortened the loan tenure to 15 years instead of 20.
A debt-free homecoming
With their strategic approach and unwavering determination, Shafi and Roohi successfully prepaid their Bank of Baroda home loan much before the initial tenure. The joy of owning their home outright was unparalleled, and they celebrated this significant milestone with friends and family.
As the sun set behind the serene Kashmiri mountains, Shafi and Roohi sat on their porch, feeling grateful for their journey. They knew that prepayment was not just a financial strategy; it was a testament to their resilience and dreams. The Bank of Baroda had not only provided them with a home loan but had been a guiding light in their pursuit of a debt-free future.
In this story of determination and financial prudence, Shafi and Roohi showed that with the right strategies and support, owning a home was indeed possible, even in the enchanting valley of Kashmir. Bank of Baroda MCLR and home loans played a crucial role in shaping their dreams into reality. As they looked out at the picturesque terrain, they knew they were truly home – debt-free and content.