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|
|Sundaram Home Finance Limited||Nil||Nil|
|Aditya Birla Housing Finance Limited||Nil||Nil|
|Gruh Finance Limited||Nil||Nil|
|Oriental Bank of Commerce||Nil||Nil|
|LIC Housing Finance Limited||Nil||Nil|
|State Bank of India||Nil||Nil|
|Bank of Baroda||Nil||Nil|
|Bank of India||Nil||Nil|
|Bank of Maharashtra||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||Nil||Nil|
|Kotak Mahindra Bank||Nil||Nil|
|Jammu & Kashmir Bank||Nil||Nil|
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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