A "low interest" loan shouldn't mean you have very little interest in paying it back!
Preclosing a home loan simply means paying off your home loan way before the term of the mortgage is done. This can be done for various reasons such as refinancing, saving on interest, etc. Sometimes a borrower can refinance his/her housing loan with another bank merely because the bank is willing to provide a lower rate of interest on the home loan than the bank that the borrower is currently indebted by. In this case, the borrower simply applies for a loan in a desired bank, and upon approval, the bank pays off the existing loan in full, thereby allowing the borrower to avail a loan with a lowered interest rate.
A borrower can also preclose a housing loan to save up on interest. Closing off a loan before the term is due allows the borrower to evade a part of the interest. Any interest he/she was supposed to pay post preclosure will automatically be waived off on closing the loan. However, one must take into consideration the home loan preclosing charges that a bank may charge before preclosing. Sometimes, it would not make sense to preclose the loan as the charges levied on home loan preclosure exceed the amount that can be saved by paying off the loan in full.
Banks usually dispirit borrowers to prepay housing loans as the borrower would end up repaying lesser to the bank than if he/she had to finish off the entire tenure of the loan. This is why a bank or lender usually charges a preclosure fee.
| Bank | Preclosure charges | Prepayment charges |
|---|---|---|
| PNB Housing Finance Limited | Nil | Nil - Individual Borrowers 2% of prepaid principal – Non-individual borrowers |
| HDFC LTD. | Nil | Nil |
| Indiabulls | Nil | Nil |
| Sundaram Home Finance Limited | Nil | Nil |
| Axis Bank | Nil | Nil |
| DBS Bank | Nil | Nil |
| Aditya Birla Housing Finance Limited | Nil - Individual Borrowers 2% of outstanding principal – Non-individual borrowers |
Nil |
| Gruh Finance Limited | Nil | Nil |
| Oriental Bank of Commerce | Nil | Nil |
| DHFL | Nil - Individual Borrowers 2% of outstanding principal – Non-individual borrowers |
Nil - Individual Borrowers 3% of outstanding principal – Non-individual borrowers |
| LIC Housing Finance Limited | Nil to 2% of the prepaid loan amount | Nil to 2% of the prepaid loan amount |
| Federal Bank | Nil to 3% of the outstanding balance | Nil to 3% of the outstanding balance |
| State Bank of India | Nil | Nil |
| Andhra Bank | Nil | Nil |
| Dhanlaxmi Bank | Nil | As per the terms of the bank |
| Bank of Baroda | Nil | Nil |
| Bank of India | Nil | Nil |
| Bank of Maharashtra | Nil | Nil |
| Canara Bank | Nil | Nil |
| Dena Bank | Nil | Nil |
| IDBI Bank | Nil | Nil |
| Indian Overseas Bank | Nil | Nil |
| Karur Vysya Bank | Nil | Nil |
| South Indian Bank | Nil | Nil |
| Tamilnad Mercantile Bank | Nil | Nil |
| Central Bank of India | Nil | Nil |
| India Shelter Finance Corporation | Nil | Nil |
| AAVAS Financiers Limited | Nil | Nil |
| Reliance Home Finance Limited | 2% to 5% of the poutstanding principal | 2% to 5% of the poutstanding principal |
| TATA Capital | Nil – When paid off using own funds | Nil – When paid off using own funds |
| Kotak Mahindra Bank | Nil | Nil |
| Jammu & Kashmir Bank | Nil | Nil |
| Yes Bank | Nil - For floating rates 4% of outstanding principal –for fixed rates |
Nil - For floating rates 4% of outstanding principal –for fixed rates |
The various types of home loan closures are as follows:
After closure of a home loan, it is the lender’s duty to hand over all the required documents back to the borrower. After all dues have been paid to the bank, the documents mentioned below must be collected from the lending institution.
In conclusion, prepaying a loan can help save some money. However, it must be done after careful calculation, as sometimes it may very well be that you are not saving any money. Also, the lump sum outflow of money can be a detriment to a person’s lifestyle and daily requirements.
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