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A Comprehensive Home Loan Guide For First Time Home Buyers In India.
As an individual, you would always want to be free of any debt. It is this feeling that encourages you to consider repayment of your home loan as early as possible. The prepayment clause in your home loan agreement allows you to pay off the outstanding balance in the event of you having some amount of surplus funds with you prior to the end of the loan tenure. You can repay the housing loan either in part or in full. If you make a part payment, the outstanding principal reduces and the EMI or the loan tenure decreases.
Home loan prepayment is a good idea, but some of the aspects that you need to take into account prior to prepaying the loan are as follows:
Most lenders specify a prepayment penalty, the fee/charge that you should to pay if you want to repay the loan before the completion of its tenure. You may prepay the loan with the funds you have in your savings account or by transferring the loan to another bank so that you can enjoy a lower interest rate. Lenders charge a fee for early repayment because they will be losing out on their interest income.
As regards the home loan prepayment rules, the Reserve Bank of India (RBI) issued a circular in 2014 stating the prepayment rules for lenders. The National Housing Bank has communicated the same to banks and housing finance companies (HFCs). These are as follows:
Banks and HFCs cannot charge any prepayment fee in the following situations:
As per RBI rules, banks can charge prepayment penalty only on the loan amount that is outstanding. Typically, the prepayment penalty is 2 to 3 percent of balance outstanding at the time of prepayment.
One of the key home loan prepayment advantages is a reduction in the interest burden. This, in turn, brings down the cost of your house. However, it can turn out to be tricky if you are not well informed of the formalities involved and charges payable. Getting rid of the liabilities might seem attractive when you get some extra money through a pay hike, promotion, or new job, but you should consider a few things before prepayment:
Most people in India need to avail a home loan to fulfil their dream of having their own residence. There are advantages and disadvantages to availing a home loan. While a couple of advantages are tax benefits and capital appreciation, the main disadvantage is that it is a long-term financial commitment. Therefore, you should choose your home loan wisely by developing a clear understanding as to what it entails. You should put in some amount of effort for this purpose. If you are a busy person, you could start your research by going through this home loan guide which touches upon all of the key aspects related to home loans in brief. Ultimately, you have to decide your budget, based on your specific needs, and borrow an amount that you will be able to repay without any hassles.
Home Loan Agreement & Important Clauses
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