A mortgage is a type of loan that is borrowed against your property or any valuable asset that is equivalent to the borrowed amount. It’s a legal process for availing this facility from a particular lender. With a mortgage loan, you agree with the lender’s deal and you have to provide an agreement in which you have to mention that you will repay the loan amount in the set of years otherwise your property will be seized by the lender.
Here, we are talking about prepayment of a loan means you intend to pay off your EMI or loan debt very early before the prescribed ending of your tenure. In normal repayment procedure, you pay a particular amount every month to your lender with interest, taxes and insurance.
Mortgages come with several types of advantages and demerits under a legal agreement with the lender which every person should know. Sometimes people choose personal loans for debt consolidation if they have multiple loans in hand with mortgage loans. It provides big relief to individuals facing debt repayment issues.
How Prepayment of Mortgage Works? Know Here
The prepayment of a loan means you have to pay your loan amount very early before your tenure ends. In prepayment of your mortgages, you want to pay an extra amount than the fixed EMI per month. It is to be noted that every extra penny you pay in advance to your financial institution will be considered as the principal amount, not the interest rate which becomes a great relief for the person who has taken a loan with the mortgaging process. It saves lots of money on interest.
Benefits of Prepayment of Mortgage Loans
Become stress-free sooner: The prepayment facility is provided by some lenders only but when you get this opportunity, try to pay off all your loans with ease as it will make you stress-free very sooner.
Saves Interest: The prepayment of mortgages helps you save lots of interest on the principal amount you have paid to your lender. First, you have to contact your lender to manage things better. If your lender agrees to the prepayment of debt for mortgages, you can save money on interest as per the guidelines and eligibility of your financial institution.
Build Home Equity Quickly: Prepayment of mortgage loans will help you in building equities very quickly as this benefit is trending these days. With the prepayment option, you can easily minimize debt to income ratio also as it will help very simply for getting other types of loans.
Cons of Prepayment of Mortgage Loans
Penalty Charges: Most lenders don’t offer prepayment of mortgages because it has a financial risk for them. If you go against these rules or make a prepayment for your debts, then you may face penalty charges. It may vary from one service provider to another. You should check the same by visiting the website of the particular lender.
Interest Deduction: Another demerit of prepayment of mortgages is interest dedication on the smaller mortgages. You have to face financial issues in early repayment of your loan amount.
Less Amount for Saving: Once you choose prepayment of your mortgage loans, then you may face money crunch issues of meeting financial obligations. So, it’s a better idea to manage things effectively for repayment of your mortgages.
Reduced Credit Score: One other disadvantage of prepayment of mortgage loans to your lender is to face a low credit score as you are going against your lender’s interest and expectations. Your credit score matters in various other financial assistance from the same lender like taking a personal loan for debt consolidation, secured loan or any other financial assistance.
Summary
Prepayment of Mortgage loans means you intend to pay mortgage debts before your tenure ends. Prepayment has its own merits and demerits which affect the financial status of the common man. If we talk about benefits, then you can get rid of paying mortgage debts for a long time to your lender, and get interest benefits and DTI advantages. On the other hand, several prepayment penalties are there, with deducted mortgage interest and low credit score are cons of this deal.