Understand Home Loan Pre Closure Charges & Rule

Types of Home Loan Closures

There are various types of Home Loan closures:

1. Regular Repayment: Borrowers make monthly payments consisting of principal and interest until the loan is fully repaid.

2. Pre-payment: Borrowers have the option to repay the loan partially or in full before the scheduled tenure, reducing total interest costs.

3. Loan Closure through Foreclosure: Borrowers repay the entire outstanding loan amount before the scheduled tenure, often when a significant sum becomes available. Foreclosure is a type of pre-payment.

4. Loan Transfer or Balance Transfer: Borrowers may transfer their Home Loan to another lender to benefit from more favourable terms or more attractive interest rates.

5. Loan Closure on Property Sale: The loan is closed using proceeds from selling the property for which the loan was taken.

What Are Home Loan Foreclosure Charges?

Home Loan foreclosure charges are fees imposed by lenders when borrowers choose to repay the entire outstanding loan amount before the scheduled tenure. These charges vary depending on the lender and the terms of the loan agreement. Borrowers should review the terms and conditions of their Home Loan agreement to understand foreclosure charges on their specific loan.

Factors Affecting Home Loan Foreclosure Charges

Several factors influence the foreclosure charges on a Home Loan, as listed below:

1. Type of Interest Rate

ICICI Bank doesn't apply any charges on the foreclosure of Home Loans which have a floating rate of interest. Fixed-rate loans may attract fees, depending on internal policies.

2. EMI Dues

Any unpaid or overdue EMIs at the time of closing the loan will be added to the final payment amount.

3. Loan Type and Tenure

The type of loan and how long it runs can affect foreclosure charges. Check with your lender before proceeding.

It’s important to review your loan agreement and consult your lender to understand the exact terms and avoid unexpected charges. Considering these factors can help you make informed decisions and potentially save on costs.

Documents To Be Collected After Home Loan Foreclosure

After Home Loan foreclosure, borrowers need to collect several documents, including:

• No-Objection Certificate (NOC) from the lender, confirming the loan closure

• Original property documents pledged as collateral

• Foreclosure statement detailing the final loan amount and charges paid

• Receipt of the final payment made towards the loan

• Any other documents specified by the lender or local regulations.

Should You Consider Paying Off Your Home Loan Early?

• When you have some extra money, e.g., a bonus or proceeds from the sale of investments, you can consider paying off your loan faster and save money in the long run.

• Early repayment helps you save on interest payments and this can lead to reduced EMIs.

However, when you are deciding whether to foreclose your loan, make sure that you know about the applicable Home Loan foreclosure charges. If your loan is at a high interest rate, early repayment can be more beneficial. But if the interest rate is low and your investments are growing well, you may want to continue with the current EMIs. In short, paying off a Home Loan early is a smart idea when it helps you save money, avoid unnecessary interest and reduce long-term financial stress.

FAQs

Is it wise to foreclose a Home Loan?

This depends on individual financial circumstances, including available funds, performance of current investments and future goals.

Is it mandatory to pay foreclosure charges?

Borrowers are typically required to pay foreclosure charges as per the terms of their loan agreement.

Is Home Loan pre-payment a good idea?

Yes, you can close your Home Loan before the scheduled tenure, but foreclosure charges may apply. You can also partially pre-pay your Home Loan after considering the charges, if any. Partial or full pre-payment is a good move if your interest rate is high and you are still making interest payments.