Prepayment of a home loan before the scheduled mortgage period is referred to as home loan pre-closure. There are several reasons why one might choose to pre-close a home loan, including the opportunity to secure a lower interest rate through refinancing. By opting for pre-closure, borrowers have the potential to save a significant amount on interest payments.
What is home loan pre-closure charges?
Money lending institutions, such as banks and NBFCs discourage homebuyers from paying the pre-closure charges as the loan would be re-paid faster, and interests earned will be impacted. To make up for this, some institutions charge the home loan pre-closure charges. So, one has to be careful while opting for pre-closure of loans. Sometimes, the charges levied for pre-closure would be more than money that you may save by pre-closing the loan. So, calculate everything before going for the pre-closure.
Also Read: How are NBFCs providing housing loans in India? What is its impact?
Home loan pre-closure charges
| Pre-closure charges | Prepayment charges | |
| Axis Bank | No | No |
| Andhra Bank | No | No |
| Bank of Baroda | No | No |
| Bank of Maharashtra | No | No |
| Bank of India | No | No |
| Canara Bank | No | No |
| Central Bank of India | No | No |
| DBS Bank | No | No |
| Dena Bank | No | No |
| Dhanlaxmi Bank | No | No |
| Federal Bank | No to 3% of the outstanding balance | No to 3% of the outstanding balance |
| IDBI Bank | No | No |
| Indian Overseas Bank | No | No |
| Jammu and Kashmir Bank | No | No |
| Karur Vysya Bank | No | No |
| Kotak Mahindra Bank | No | No |
| Oriental Bank of Commerce | No | No |
| State Bank of India | No | No |
| South Indian Bank | No | No |
| Tamilnad Mercantile Bank | No | No |
| Yes Bank | No | No |
| Aditya Birla Housing Finance Limited | No | No |
| AVAS Financiers Limited | No | No |
| Gruh Finance Limited | No | No |
| HDFC | No | No |
| IndiaBulls | No | No |
| Indian Shelter Finance Corporation | No | No |
| LIC Housing Finance Ltd. | No to 2% of the prepaid loan amount | No to 2% of the prepaid loan amount |
| PNB Housing Finance Ltd. | No | No |
| Reliance Home Finance Ltd. | 2-5% of the outstanding principal | 2-5% of the outstanding principal |
| Sundaram Home Finance Limited | No | No |
| Tata Capital | No charges if paid using own funds | No charges if paid using own funds |
How will you pre-close the home loan?
- Submit a written application to the money lender that you want to pre-close the home loan and ask for the original property documents and home loan agreement papers.
- Settle all the outstanding dues.
- After pre-closure, get the NOC from the lender that will cite that no-pending dues exist, and your property can be legally released from mortgage.
- Get an NOC from the moneylender (bank or NBFCs), stating that all terms for pre-closure with respect to the repayment were followed.
- Get hold of your original property documents.
- Once the loan is closed, ask the moneylender to update your credit score. This will facilitate you getting easy loans.
Also Read: A quick guide to preparing yourself financially to buy a house
What are the different types of home loan closure?
Regular closure: This means repaying the loan, according to the loan tenure agreed originally at the time of taking the home loan.
Pre-closure: This means paying the entire outstanding loan amount before the tenure finishes.
Bad loan closure: In case a borrower is unable to repay the loan, a bank may waive the fees sometimes. The bank seeks money from the guarantor and may look at attaching the collateral.
Settled loan closure: In case, the borrower is unable to repay the full loan amount, the moneylender may settle for a discounted rate to repay.
Also Read: Latest RBI Guidelines for Home Loans 2024
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Ans 1. While generally there are no pre-closure charges for home loans, some institutions charge for pre-closure of home loans to discourage borrowers from closing the loan.
Ans 2. Pre-closing home loans cannot help you become free from debt soon by saving on interest.
Ans 3. The minimum tenure for a home loan is 12 months.
Ans 4. While prepayment means you pay the EMI amount in advance and reduce the loan tenure, fore-closure means closing the entire loan before the tenure.
Ans 5. No. CIBIL scores will not be affected by prepayment.