936 questions
451 answers
49 comments
11,974 users
+1 vote
26 views
Usually the bank charges 2% of the principal pre-paid. I am not able to understand this. Can Any one explain?
asked Sep 7, 2017 in Home Loan by Sundar (62 points) | 26 views

1 Answer

0 votes
When you take a home loan from a bank you will be paying it back in the form of an Equated Monthly Installment (EMI). This EMI constitutes both the principal as well as the interest component. Now suppose you have got a windfall in the form of annual bonus or gift or anything of that sort and you would want to lower the burden of EMI's. In this situation you will pre-pay your loan i.e. deposit these surplus funds in your home loan account with the bank. This will reduce your principal component and eventually reduce your EMI's. Obviously, this prepayment is not good news for the banks and they try and dissuade you by putting extra charges on pre-payment.

Hope this helps.
Kris
answered Sep 8, 2017 by Kris Reddy (49 points)
Welcome to Zippserv Q&A, where you can ask questions and receive answers from other members of the community.