A "low interest" loan shouldn't mean you have very little interest in paying it back!
  • Custom Free

    Custom quote

  • Home Loan Prepayment

    Loading your search...
  • Holding a debt is an unwanted and distressing thought for many individuals. Any loan taken is a form of debt which needs to be repaid with the addition of interest that is applicable on that loan. Considering this, it is only natural that anyone who holds a home loan, would want to pay it off as soon as their finances have improved. Loan prepayment is defined as when a customer has paid off their loan completely or partially before the scheduled due date as specified in the policy wording. However, prepayment on a home loan, though considered by many loan takers, may not always be the best financial decision that one can make. There are multiple factors which one must consider before deciding to pre-close their home loan.

    Who can make Home Loan Prepayment?

    While a prepayment on your home loan can be beneficial for you, it is a loss for your home loan provider. For home loans, banks borrow funds based on a commitment for a long time period. When a customer pre-closes their home loan, those funds received by the bank must be re-assigned through credit channels, which is an additional cost for the bank to bear. This is the reason why loan borrowers are discouraged from prepaying their loan by the bank. One of the most common method in which banks discourage prepayment on home loans is be refusing to accept the payment unless the borrower visits the bank branch in person. However, though most people may not be aware of the fact that even if they may not be physically present at the bank branch to make the prepayment, they can do so by authorizing a representative to make the payment of their behalf. For this purpose, the representative must carry a letter issued by the original loan borrower authorizing them to make the payment on their (the loan borrower’s) behalf.

    Some Do’s & Don’ts of Home Loan Prepayment:

    Given below are a few things to remember when you are making your home loan prepayment:

    1. Do remember to carry a Government issued photo ID proof like your PAN card, Passport or Driving Licence, etc.
    2. Do remember to carry your cheque book as you will be making not only for the home loan prepayment principal amount but also for the simple interest applicable on your home loan which needs to be paid alongside.
    3. Don’t forget to mention your details like your name, contact number and home loan account number behind all the cheques which you issue to the bank for prepayment.
    4. You must remember to take the acknowledgement of the pre-payment that you’re making. The acknowledgement must mention details like the post-prepayment principal outstanding amount, remaining of the home loan duration or the new EMI. Ensure that the acknowledgement is duly stamped and signed by the authorized bank representative.
    5. In the event that your EMI payment is done via cheques and your EMI has been revised and reduced following the prepayment, then you will be required to issue fresh cheques with the revised EMI amount. Having done that, do not forget collect the previously issued unused cheques which you had issued with the higher EMI amount. This is to prevent misuse of your funds.
    6. Carry along your bank statement, of the account from which you have been making your home loan payments, for the past 6 months. This may be required as some banks might request you to provide the source of the funds for your home loan pre-payment.

    Updating Pre-payment Details in the CIBIL Database:

    One of the most important parts of the prepayment process is updating your prepayment details in the CIBIL database. Your CIBIL score is essentially a proof of your credit health and is heavily dependent on your outstanding home loan balance. Therefore, making a prepayment on your home loan can greatly decrease your outstanding balance and improve your credit score.

    While banks may be quick to update your CIBIL score hen you’ve take the loan, they may not be as efficient to update the score when you have pre-paid your loan. You must ask your bank to immediately update your current home loan account balance in the CIBIL database with the revised principal balance amount. It can normally take from 45 to 60 days for the details to be updated, counting from the date when the prepayment has been made. Do remember to go through your CIBIL report after the mentioned duration required for updating the score on the database and check if the same has been done.

    Is It Wise To Pre-pay Your Home Loan Considering The Current Interest Rate Regime?

    Following the Reserve Bank of India’s tightened policy stance, the present interest rate cycle is likely to either incline or remain steady. But is it wise to foreclose your home loans early with rates expected to go up again during the fiscal year? With most home loans linked to the Marginal Cost of funds based Lending Rate (MCLR), existing borrowers can continue paying the same rate until the reset clause is specified by the bank depending on the type of MCLR the loan is linked to. While new borrowers will have to pay a higher interest on the home loans, existing borrowers might have to brace for a higher rate if the bank hasn’t specified the rest clause in the previous months. Another aspect to consider before foreclosing your home loan are the tax benefits one can avail on the repayment of principal and interest amount annually. As per the Income Tax Act, you can avail benefits that allow deductions up to Rs.1,5 lakh under Section 80C on the principal part and deductions up to Rs.2 lakh under Section 24(b) for the interest payment on the housing loan.

    Display of any trademarks, tradenames, logos and other subject matters of intellectual property belong to their respective intellectual property owners. Display of such IP along with the related product information does not imply BankBazaar's partnership with the owner of the Intellectual Property or issuer/manufacturer of such products.

    This Page is BLOCKED as it is using Iframes.