What happens if you want to repay your home loan earlier than the agreed tenure? You need to know the foreclosure charges involved! Let’s understand in detail!
Home loan foreclosure means repaying your entire loan early, before the agreed tenure. Borrowers may choose foreclosure if they have extra money or get a large sum, like from a bonus, inheritance, or selling property.
Why Foreclose a Loan? The main advantage is that you save on future interest payments. However, it’s important to know about any potential charges you might face, as some lenders apply fees to compensate for the interest they would lose.
Foreclosing your home loan is just one way to close it. Let’s explore other methods of home loan closure:
Prepayment means paying a part of your outstanding loan amount before the tenure ends. This lowers the total loan amount and helps save on interest.
A balloon payment is a big one-time payment made at the end of a loan. It's used in loans with smaller monthly payments but a large amount due at the end. This kind of payment is not common for regular home loans but can happen in some financing agreements.
Suppose you take out a loan of ₹10 lakh with a 5-year term. Your monthly payments are low, around ₹20,000, for the first 5 years. However, at the end of the 5 years, you still owe ₹5 lakh. This ₹5 lakh is the balloon payment, which you would need to pay in full at the end of the loan term.
If you find another lender offering a lower interest rate, you might consider transferring your home loan. A balance transfer can help you save on interest, but understand any foreclosure or processing fees your current lender may charge.
If you decide to sell the property, the proceeds can be used to clear the loan. This requires notifying the lender and making sure that all dues are paid before transferring ownership to the new buyer.
Foreclosure is when you repay the entire loan before the agreed time. Lenders may charge a fee for paying the loan early.
Before foreclosing your home loan, make sure you have all the necessary documents:
NOC (No Objection Certificate) from the Lender: A document that confirms the lender agrees to the early repayment of the loan.
Original Property Documents: The lender will return your original property documents once the loan is fully repaid.
Receipt of Final Payment Towards Loan: Proof of the last payment made to settle the loan amount.
Any Other Documents: As required by the lender, such as an identity proof or loan account details.
Here’s a detailed look at foreclosure and prepayment charges levied by various lenders:
| Name of the Lender | Foreclosure Charges | Prepayment Charges |
|---|---|---|
| HDFC | Nil | Nil |
| DHFL | Nil for individual borrowers 2% for non-individuals | Nil for individuals, 3% for non-individuals |
| LIC Housing Finance Limited | Nil to 2% of the prepaid amount | Nil to 2% of the prepaid amount |
| State Bank of India | Nil | Nil |
| Axis Bank | Nil | Nil |
| Kotak Mahindra Bank | Nil | Nil |
| Yes Bank | Nil for floating rates, 4% for fixed rates | Nil for floating rates, 4% for fixed rates |
| Indian Overseas Bank | Nil | Nil |
| Bank of India | Nil | Nil |
| IDBI Bank | Nil | Nil |
| PNB Housing Finance Limited | Nil | Nil for individuals, 2% for non-individuals |
| Bank of Baroda | Nil | Nil |
| TATA Capital | Nil if paid using own funds | Nil if paid using own funds |
Type of Interest Rate: Most banks do not charge foreclosure fees on floating interest rate loans, as mandated by the Reserve Bank of India (RBI). However, fixed-rate loans may attract a foreclosure charge.
Loan Tenure: The stage at which you foreclose your loan matters. Foreclosing early in the loan tenure can help you save more on interest.
Mode of Payment: If you’re using your own funds (like savings) to prepay or foreclose, lenders generally charge lower or no fees. However, if you’re refinancing or transferring the loan, charges may apply.
Foreclosing your home loan early can be a good financial choice if you can afford it. However, be aware of any charges that may apply. Foreclosure fees differ between lenders, so it's important to understand them. Always check your loan agreement and consult a financial advisor if needed.
We understand that getting a loan can be very stressful with confusing documents, unclear communication, and various other challenges. That is why we take care of your loan application process, saving you time and hassle by handling the paperwork and communicating with the loan providers.
Check the details at EazyBankLoan
Need help? Reach out at support@eazybankloan.com
No, as per RBI guidelines, lenders cannot levy foreclosure charges on floating rate home loans.
Foreclosing your loan doesn’t negatively impact your credit score. In fact, closing a loan account in full can reflect positively.
Opt for a lender that offers Nil charges on foreclosure or plan your payments in a way that minimizes fees.
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