Pre-closure charges might seem like a daunting obstacle on your road to financial freedom. In this blog, we’ll demystify “Home Loan Pre-Closure Charges” to equip you with the knowledge you need. Learn how you can save money, shed your financial burden, and work toward being a debt-free homeowner. Keep reading to take control of your financial future.
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What are Home Loan Pre-Closure Charges?
Preclosure of a home loan before the scheduled term may seem like an attractive option, and it can be pursued for various reasons, including refinancing or interest savings. It often occurs when a borrower decides to switch their housing loan to a different bank, primarily because the new bank offers a more favourable interest rate compared to the current lender.
In this scenario, the borrower initiates the process by applying for a home loan with the desired bank. Upon approval, the new bank pays off the existing loan in its entirety, enabling the borrower to avail a loan with a lower interest rate, which can lead to substantial savings in the long run.
Another motivation for pre-closing a housing loan is to reduce the overall interest paid. By settling the loan ahead of schedule, borrowers can avoid paying a portion of the interest that would have been due had they continued with the original tenure.
However, it’s crucial to take into account the home loan pre-closure charges imposed by the bank. The decision to pre-close a home loan should be weighed against the home loan prepayment charge associated with it. In some cases, the home loan foreclosure charges can surpass the amount saved by paying off the loan early, making it financially impractical.
Banks often discourage borrowers from preclosure of home loans because it results in the bank receiving less interest than if the borrower had adhered to the full loan tenure. Consequently, banks or lenders typically levy a home loan early repayment fee to compensate for the lost interest revenue.
If you’re considering pre-closing your home loan to save money, you should also explore other financial advantages such as Home Loans with EMI Waivers offered by some lenders.
Home Loan Preclosure Fees of Banks
| Bank | Preclosure charges | Prepayment charges |
| HDFC LTD | Nil | Nil |
| Dhanlaxmi Bank | Nil | As per the terms of the bank |
| LIC Housing Finance Limited | Nil to 2% of the prepaid loan amount | Nil to 2% of the prepaid loan amount |
| Tamilnad Mercantile Bank | Nil | Nil |
| IDBI Bank | Nil | Nil |
| PNB Housing Finance Limited | Nil | |
| Dena Bank | Nil | Nil |
| Jammu & Kashmir Bank | Nil | Nil |
| India Shelter Finance Corporation | Nil | Nil |
| State Bank of India | Nil | Nil |
| South Indian Bank | Nil | Nil |
| Yes Bank | Nil | Nil |
| Canara Bank | Nil | Nil |
| Oriental Bank of Commerce | Nil | Nil |
| Federal Bank | Nil to 3% of the outstanding balance | Nil to 3% of the outstanding balance |
| Bank of Maharashtra | Nil | Nil |
| Central Bank of India | Nil | Nil |
| Karur Vysya Bank | Nil | Nil |
| Andhra Bank | Nil | Nil |
| Reliance Home Finance Limited | 2% to 5% of the outstanding principal | 2% to 5% of the outstanding principal |
| TATA Capital | Nil – When paid off using own funds | Nil – When paid off using own funds |
| Bank of India | Nil | Nil |
| Axis Bank | Nil | Nil |
| Gruh Finance Limited | Nil | Nil |
| AAVAS Financiers Limited | Nil | Nil |
| Bank of Baroda | Nil | Nil |
| DBS Bank | Nil | Nil |
| Indian Overseas Bank | Nil | Nil |
| Sundaram Home Finance Limited | Nil | Nil |
| Kotak Mahindra Bank | Nil | Nil |
| Aditya Birla Housing Finance Limited | Nil | |
| Indiabulls | Nil | Nil |
Steps to Preclose Home Loan
To initiate the pre-closure process of your home loan, follow these steps:
Write a Formal Letter: Begin by composing a detailed letter addressed to your bank. In this letter, communicate your intention to preclosure, and request the necessary procedures and documents.
Read: IDBI Home Loan Interest Rates – Updated in May 2024
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Request Official Documents: Emphasise the return of all official documents related to your housing loan, such as property papers and loan agreements.
Obtain a No Objection Certificate (NOC): The bank should provide you with an NOC, confirming that there are no outstanding dues or liabilities on your part. This certificate is essential for the legal release of your property from the mortgage.
Second NOC for Mutual Agreement: Secure another NOC from the bank, indicating a mutual agreement between both parties—the bank and you, the borrower—regarding the preclosure and the repayment terms.
Settle Outstanding Dues: Clear any remaining dues, as per the agreed-upon terms, and obtain the necessary receipts and records.
Receive Property Documents: Ensure the bank hands over all original property documents to you, signifying the completion of the preclosure process.
By following these steps diligently, you can successfully preclosure your home loan and gain full ownership of your property.
Learn more about exclusive benefits like Home Loan for Women in India that cater to the specific financial needs of women homeowners.
Types of Home Loan Closures
There are several types of home loan closures:
Preclosure: This involves paying the entire outstanding loan amount before the intended loan tenure concludes.
Regular closure: The loan is closed upon completion of the originally agreed-upon tenure.
Bad loan closure: In certain situations, if a borrower struggles to make loan payments, the bank may consider waiving off fees. However, collateral may be at risk, and guarantors may be held accountable in most cases.
Settled loan closure: When a borrower cannot repay the full loan amount, the lender may offer a discounted rate to settle the overdue portion, and the remaining balance is forgiven.
While pre-closing your home loan is an excellent way to save on interest costs, there are also alternative financing options available to homeowners. One such option is exploring Pre-Approved Home Loans in India.
We’ve equipped you with the necessary information regarding “Home Loan Pre-Closure Charges,” Now you can assess your loan situation, estimate potential savings and get in touch with your lender to discuss pre-closure procedures. However, if you’re worried about potential challenges, know that NoBroker Home Loan Services is here to support you. With our expertise in streamlining complex tasks, we can help you achieve stress-free financial management.
FAQs
FAQ 1: What are home loan closure charges?
Answer: Home loan closure charges, also known as pre-closure charges, are fees levied by lenders when borrowers pay off their home loan before the originally agreed-upon tenure ends.
Read: Central Bank of India Home Loan Interest Rate 2024
FAQ 2: Does SBI impose any pre-closure charges on home loans?
Answer: No, State Bank of India (SBI) does not impose any SBI home loan pre closure charges on home loans.
FAQ 3: Are there HDFC home loan pre-closure charges?
Answer: If you are an individual borrower, there are no prepayment or foreclosure charges when opting for HDFC home loan prepayment or foreclosure. However, for non-individual borrowers (such as companies, sole proprietorship firms/concerns, or HUF as co-applicants), charges do apply.
FAQ 4: Can I pre-close my home loan without incurring any charges?
Answer: In most cases, you can pre-close your home loan without charges if your lender does not have a pre-closure fee policy.
FAQ 5: Is there a difference between pre-closure charges and prepayment charges?
Answer: Pre-closure charges are incurred when you pay off the entire outstanding loan amount before the tenure ends. Prepayment charges may refer to partial payments made during the loan tenure, which can attract different fees.
