Prepaying your Home Loan: Know these charges and interests

While you can prepay your home loan, you must be prepared to pay extra interest

Preclosing a mortgage means paying off your loan before the term of the loan expires. It can be undertaken for many reasons, including refinancing and interest savings. A borrower can also refinance their housing loan with another bank simply because the bank is ready to offer a lower home loan interest rate. In this situation, the borrower requests a loan with a preferred bank, and if approved, the bank pays off the old loan in full, allowing the borrower to get a loan at a reduced interest rate.

A debtor can also prepay a mortgage to save money on interest. Closing a mortgage before the end of the term allows the borrower to avoid paying some interest. Any interest they were to pay after the pre-closure will be waived when the loan is closed.

Steps to prepay a home loan

Every bank has different home loan prepayments rules that you need to follow. But the basic steps that are involved in the process remain the same.

• Write a detailed letter to your bank about the status of your home loan.
• Ensure that the necessary paperwork reaches back to you and that the bank has given you a No Objection Certificate (NOC) stating that you have no outstanding debts to pay.
• The bank must obtain another NOC declaring that both parties, i.e., the bank and the borrower, have agreed on the home loan prepayment clauses.

Home loan prepayment charges

Prepayment penalties are fees you must pay for paying your bills early. When banking firms implement this type of fee, it is to protect themselves from financial losses caused by decreasing interest income. Lenders typically levy a 2-4 per cent fee on the unpaid principal amount at the time of prepayment. For charges specific to the bank, you can always check their mobile banking app.

Important pointers to keep in mind when you prepay a home loan

Some points that you should remember while opting for home loan prepayment are:

• When applying for a home loan, you must provide the bank with original property documents. These documents must be returned to the property owner after the loan is paid off.
• The No Objection Certificate (NOC) is a declaration from the bank stating that you have settled your outstanding debts. Remember to collect it to avoid any problem in the future.
• After the loan has been closed, request the bank to update your credit score. It will make it easier for you to obtain loans in the future.
• Remember to bring your government-issued identification card with you. It is critical when it comes to prepaying a loan.
• Be prepared to pay the home loan's ultimate settlement.
• The bank must issue a confirmation of the payment made towards the loan. An authorised bank officer must stamp and sign this document.

There are many reasons why one may opt for a home loan prepayment, but the most common one is a home loan balance transfer. People are looking for the lowest home loan interest rates in the market to make repaying their loans easier. IDFC FIRST Bank is one of the options you can consider for repaying your loans. IDFC FIRST Bank offers home loans for salaried individuals starting at 6.90%. Further, you can customise the loans to your needs and with minimal documentation.

Disclaimer

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