Home Loan Guide

A Comprehensive Home Loan Guide For First Time Home Buyers In India.

Home Loan Guide

Home Loan Prepayment & Conclusion

 Home loan Prepayment

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.

Home loan Prepayment Rules

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:

  • You have opted for a floating interest rate on your home loan. No penalty can be levied either on part or full prepayment.
  • You have opted for a fixed rate home loan and you are prepaying from your own sources. Prepayment penalty will be applicable when you borrow from another lender to prepay your loan.
  • You make a prepayment when converting your home loan into a floating rate interest loan.

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.


Home loan Prepayment rules and advantages

  • Tips:
  • Check the home loan prepayment rules specified in your home loan agreement carefully and ensure that they comply with RBI's stipulations.


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:

  • Prepayment works to your benefit if you do not change your EMIs. When you prepay, you can either reduce the EMI or loan tenure.
  • You save more interest by prepaying early. So, if you are considering prepayment, you should do it during the early stages of your home loan and not towards the end.
  • Calculate the benefits you accrue because of prepayment.
  • Consider the tax benefits offered by home loans.
  • Consider partial prepayment instead of full prepayment. Investments may fetch you better returns under certain situations.

Conclusion

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.

  • prev

    Home Loan Agreement & Important Clauses

Disclaimer

Thank you for visiting our website. We would like to take this opportunity to keep you up-to-date with the changes currently being deployed in accordance with the rules and regulations stipulated by RERA – Real Estate Regulatory Authority.

This process may take time, and it’s duly advised not to take any information currently mentioned on the website like images, material, stock photography, projections, details, descriptions, etc. to make a final purchase decision. All information should be deemed to be or considered only as advertisements, solicitations, marketing, offer for sale, an invitation to offer, an invitation to acquire, including within the purview of RERA.

You are therefore requested to personally verify all the details and aspects of any booking/acquisition of units/premises, directly with our sales department. To reiterate, please do not rely on the information contained on this website to make a final purchase decision until all the revisions and updated are completed.

Also, please note that we’ll not be accepting any bookings or allotments based on the material, images and descriptions mentioned on the website. We request you to contact our sales department for expert advice and information on the same.

Thank you for your patience.

I Agree