Know About Home Loan Pre-Closure Charges in Detail

In India, many borrowers often contemplate the option of pre-closing their home loans before the scheduled repayment tenure ends. It's important to understand the costs and implications involved in order to make informed decisions regarding pre-closure. This article aims to provide comprehensive insights into the charges associated with home loan pre-closure, empowering borrowers with the knowledge necessary to navigate this aspect of their financial journey.

Understanding Home Loan Pre-closure

Home loan pre-closure means repaying the remaining loan amount before the scheduled repayment period. Choosing pre-closure allows borrowers to lower the burden of interest and achieve freedom from debt earlier than anticipated. It is a valuable opportunity to expedite the loan repayment process and save on interest expenses.

Benefits of Home Loan Pre-closure: Savings, Financial Freedom, and Creditworthiness

Pre-closing a home loan offers several advantages. It allows borrowers to save on long-term interest expenses, achieve debt-free status sooner, and boost their credit scores, improving creditworthiness and unlocking future financial opportunities. Let's explore these benefits in detail.

• Save on Interest: Choosing to pre-close a home loan can result in substantial long-term interest savings, allowing borrowers to minimize the overall cost of the loan and keep more money in their pockets.

• Achieve Debt-Free Status Sooner: Repaying the loan early offers borrowers the peace of mind that comes with achieving debt-free status sooner, providing a sense of financial freedom and reducing the burden of ongoing loan obligations.

• Boost Credit Score: Timely pre-closure of a home loan has a positive impact on one's credit score, improving creditworthiness and creating opportunities for future financial endeavors by demonstrating responsible repayment behavior and reliability to lenders.

Understanding Home Loan Pre-Closure Charges

Home loan pre-closure charges refer to the fees imposed by lending institutions when borrowers decide to repay the outstanding loan amount before the agreed-upon repayment tenure. These charges serve as compensation for the interest that the lender would have earned had the borrower continued the loan for the intended duration.

Types of Home Loan Pre-closure Charges

• Early Repayment Fee: Some banks may impose a prepayment penalty, also known as an early repayment fee, which is a percentage of the principal amount being prepaid. It's important to note that the Reserve Bank of India (RBI) has prohibited prepayment penalties on floating rate home loans.

• Administrative Charges: Lenders may levy administrative charges to cover the processing costs of the pre-closure request. These charges can vary among different financial institutions.

• Goods and Services Tax (GST): The lender applies GST on the administrative charges imposed for pre-closure of the home loan.

Pre-Closure Charges for Different Home Loan Types

Fixed-Rate Home Loans:

For borrowers with a fixed-rate home loan, there may be pre-closure charges ranging from 2% to 5% of the outstanding loan amount. It is important to carefully review the loan agreement or consult with the lender to determine the specific charges applicable.

Floating-Rate Home Loans:

As mentioned earlier, prepayment penalties are prohibited by the RBI for floating rate home loans. However, borrowers may still be subject to administrative charges and GST during the pre-closure process.

Steps for Home Loan Pre-closure

Review Loan Agreement:

Carefully examine your loan agreement to understand the specific pre-closure terms and associated charges.

Contact Your Lender:

Reach out to your lender to inquire about the precise pre-closure charges and the procedure for initiating early repayment.

Arrange Sufficient Funds:

Ensure you have the necessary funds to repay the outstanding loan amount, including any applicable charges.

Submit Written Request:

Send a formal written request to your lender, expressing your intention to repay the loan ahead of schedule.

Obtain No Objection Certificate (NOC):

Once the pre-closure process is completed, request an NOC from your lender as confirmation of the closed loan account.