Do you have an outstanding home loan and are you planning to pre-pay it in lump sum? Owning a home is a big achievement, and availing a loan to do so is a big-time commitment. The tenure of the loan and the amount of the loan are both massive and any borrower wants to close it at the earliest given the magnitude of it. Home loan prepayment can lead to financial benefits as it reduces the burden of paying huge interest rate and the money can be used for other investments. In India, the average tenure for this loans is 10 years, therefore, people prefer prepaying at any given opportunity.
When is the right time for Home Loan Prepayment?
You can prepay the loan only when you have surplus cash. The surplus cash comes in when the flow of income rises. In such a scenario, the you can either clear the loan in one go or increase his EMI amount and shorten the tenure to avoid any closure charges. Banks normally do not encourage pre-payment, therefore, they penalize you with a pre-payment charge. Another option is that you pay an extra hefty EMI annually which every bank allows without any additional costs. So, the final decision to prepay or to shorten the loan period, stays with borrower, who decides what suits him best.
How to prepay Home Loan?
Most banks do not have the facility to prepay online. So, the borrower must go personally or send a representative to close the loan. There are certain things that the borrower must keep in mind before loan foreclosure, they are as follows:
- The borrowers must take the acknowledgement from the bank once the payment is done. The acknowledgement should be a detailed receipt mentioning the outstanding debt, revised tenure of if it has been foreclosed. The entire transaction should be stamped and signed by the lenders.
- If the previous monthly instalments were getting debited by post-dated cheques then the borrower has to issue fresh cheques mentioning the revised EMI.
- The borrower must mandatorily mention his name, account number of the home loan, his contact details and other crucial details behind every cheque.
- Some banks insist on checking the source of fund for the loan prepayment. In that case, carry the bank and transaction statements of the last 6 months.
- The borrower must be alert that all these transaction changes are updated in his credit score. Usually, they’re up within 45-60 days. Should there be a lag, the borrower can raise a concern with the said bank.
The time for loan prepayment entirely depends on how the borrower wants to spend his money and how the market favours his decision. Only after weighing all these options, they should take this step and evaluate if this move is profitable for them or works in their favour in the long run.
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