Pre-paying a housing loan is also known as pre closure or prepaid loan. It essentially means the early payment of the remaining loan amount before the date / tenure which was agreed upon during the loan contract signing. People may prepay loans either in part or in full. This is usually as a result of an unexpected windfall or reaching higher levels of earning, which gets the borrower to the situation of being able to clear off the housing loan before the agreed tenor. But while making this decision, it is worth deliberating certain other aspects or alternative viewpoints to be clear in thoughts and action.
Ideally, early repayment of loan whether in part or in full is a beneficial idea since it helps to save huge costs in the form of interest to be paid to the lender. It is extremely beneficial if done in the early stages of the loan tenure to provide the maximum savings.
However, if you are at a late stage in the duration of your loan period, this decision is debatable. In such a scenario, you will need to consider the prepayment charges of your lender and then do the calculation whether the savings from interest outweigh the penalty charges or the other way round.
Another aspect that may be considered is whether the amount you intend to give the lender for early repayment of the housing loan may be better invested in some financial tool. The returns on such an investment (like in equity-backed tools) may be far more superior to your anticipated savings. Having said that, do note that market returns can never be guaranteed to the frequent volatility of its nature.
Home loan also offers tax benefits in terms of deduction from the annual taxable income. These benefits will cease to exist after the loan repayment. This is also worth considering in your overall calculations, as it is easy to miss this point.
So, it is recommended not to take any decision in haste. Read the loan terms and conditions carefully and invest some time in calculating, in detail, the projected savings versus the money being spent, including the prepayment charges and other penalties.