Let’s say your mortgage principal quantity was 1L, and your EMI is 1,000. This EMI quantity has 2 parts, curiosity and principal.
For almost all of the length of the mortgage tenure, curiosity quantity will probably be increased than principal. For instance for a 30 yr mortgage curiosity will probably be increased than principal for greater than 22 years or so.
So when you pre-pay 1,000, and don’t specify how you want this 1,000 to be directed, the mortgage firm will apply your 1,000 in the direction of each curiosity and principal (it’s such as you paid 1 month EMI prematurely)… however solely a small fraction of your 1,000 is utilized in the direction of decreasing your principal quantity.
However when you specify that you really want your 1,000 to be utilized in the direction of principal solely, then they must scale back the principal quantity by 1,000, which might imply the equal of atleast 2 EMI funds (if it’s within the first 22 years of the 30 yr mortgage quoted above)
Hope this clarifies issues.
Replace: This isn’t legitimate in India, sorry