Home loan Foreclosure Charges Overview
Home loan foreclosure charges:-
The meaning of Loan foreclosure is paying off the entire remaining loan amount in a single payment instead of paying in multiple EMIs. So Many middle class individuals take home loans to buy their dream home or flat. After that they start paying monthly EMIs on their home loans sometimes due to excessive funds, some of the people want to repay the outstanding loan amount at one time without paying their EMIs, this process is known as home loan foreclosure. When a person is not comfortable to pay further EMIs and wants to pay the home loan at one time before the tenure ends, is called loan foreclosure. It is an existing part of your home loan process in which you can repay the loan before your scheduled EMI period.
Foreclosure helps a person save interest on the remaining principal amount and can invest that money elsewhere. Let us see what are the charges charged by some banking and non-banking institutions when you foreclose a home loan. Foreclosure charges are always levied on the outstanding charges of the loan. We call it prepayment penalty also.
Why foreclosure charges:
Whenever the bank gives you a loan, it gives in a particular inflow with a fixed period and the bank decides your interest rates accordingly to your loan tenure, and if that loan is repaid before the time, then the bank suffers a lot of interest loss, so the bank charges its foreclosure charges. Foreclosure charges are different from every bank.
Things to check before closing a home loan:-
- Firstly Know about the outstanding balance of your home loan so far.
- Then you should check the interest that paid on the loan.
- Check the penalty of home loan prepayment or foreclosure charges.
- Calculate the savings you will get from foreclosing a home loan.
- It is necessary to have a lump sum amount ready to close the loan.
- As per your convenience choose the payment option.
- Once the payment will be done, confirm your loan closure with Your bank. You must have collect the NOC and pledged collateral papers.
Foreclosure Home Loan Process:-
- Step 1. Visit the branch of the bank from where you want to have the home loan.
- Talk to the bank representative or your manager and ask them for the loan closure form.
- Take a form & Fill out the Loan Closure Request Form and submit it to the representative.
- You have to Wait for the confirmation of the bank.
- Then check the loan balance to be paid.
- You can make a Payment of outstanding amount through Cheque, NEFT, IMPS, RTGS or any other mode.
- In the Last, ask for the NOC from your bank and close your home loan account.
Relief to home loan borrowers in foreclosure charges:-
Non-banking finance companies (NBFCs) cannot charge pre-payment penalty or foreclosure charges from their borrowers.
You'll be happy to know some of HFCs or NBFCs companies like HDFC, LIC housing finance, PNB housing finance and India bulls housing finance do not charge for home loan foreclosure penalties to their borrowers.
Some HFCs or NBFCs take charge foreclosure penalties.
It depends on the interest rate you choose. The bank offers you two types of interest rate options, -floating interest rate and -fixed interest rate. In case of floating interest rate the bank and other financing company will not levy any penalty, but if you opt for a fixed interest rate, the housing finance company may charge you in the range of 1%* - 2%* interest on your loan outstanding.
Frequently Asked Question
Is foreclosure charges applicable on home loan?
NBFCs may not levy foreclosure charges or penalties on prepayment on any floating rate loan other than business loans to individual borrowers with or without co-borrowers.
Can bank charge foreclosure charges?
Banks are not allowed to levy foreclosure charges/prepayment penalty on home loans/all floating rate term loans for purposes other than business sanctioned to individual borrowers.
What are foreclosure charges?
Loan foreclosure means paying off the remaining home loan in one single payment instead to pay in multiple EMIs. It is an existing part of your home loan process in which you can repay the loan before your scheduled EMI period.
Can we foreclosure home loan?
If a person receives a lump sum amount, he can choose to foreclose the existing home loan to become financially debt free. To foreclose an existing home loan and become debt free, you need to keep the required documents handy and follow these steps. Outstanding home loan demands monthly EMI.
What is the benefit of foreclosure of loan?
Foreclosure of your loan is a legal process in which the borrower have to pay his loan in full one time payment before the end of the loan tenure. This helps them to reduce the interest liability and close the loan account before its tenure.
Does foreclosure Affect cibil score?
Due to foreclosure, your CIBIL score can get affected in double digits in the south direction and take it below the score which is considered to be a good CIBIL score in India. Hence, it would be a best practice to do a cost benefit analysis before closing any loan in India.
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