Opting for a home loan is one of the commonest ways of buying a home in India. However, the interest rates charged on these loans results in a substantial amount being paid to the bank above and beyond the original loan lump sum.

If you have access to enough funds to pay off the home loan, you can opt for pre-payment or pre-closure before the fixed loan tenure date. Alternatively, you can make a partial pre-payment and thus re-finance the home loan to avail of lower interest rates.

Benefits of Pre-Closing Home Loan

With a home loan, you end up paying more than the actual cost of your property and paying off the loan at the earliest is the best way forward. Hence, a major benefit of pre-closure is saving on interest rates paid. Aside from this, you also reduce the pending principal loan sum. Not having a loan or debt burden dangling over your head like the proverbial sword of Damocles will also make you less stressed. Your CIBIL score rating also gets improved in the absence of debt.

Penalty

A majority of banks and NBFCs charge a penalty for pre-closure of a loan before the tenure time; this can vary anywhere from 3-5% depending on the bank’s discretion. However, in 2013 RBI mandated waiving off penalty charges for pre-closure of home loans on floating loan rates. Do note that some banks don’t allow pre-closure. Read your loan documents carefully.

Process of Pre-Closure

This includes a series of steps including the following:

• Inform your bank of your intention and give a written application.
• Collect all the documents that were required at the time of applying for the loan. This would include your Builder-buyer agreement, the Tripartite agreement, the Sale deed, Conveyance deed and Possession letter.
• Keep important documents like ID proof, loan agreement and related documents handy.
• Keep a copy of the cheque paid towards pre-closure.
• Ensure that the receipt and loan pre-closure acknowledgement letter is duly signed and stamped.
• A NOC certificate stating that there are no more pending dues against your loan account must also be provided to you.
• Once the loan is officially closed, you have to apply for an Encumbrance certificate from your local Cooperation office.
• Ensure that your loaner bank informs the CIBIL authority so that it’s reflected in your CIBIL score.

If you are looking to invest in a home, Favorite Homebuilders have delightful villas and apartments available in key locations in Trivandrum. Do check them out!