If a person thinks of paying the Home loan in advance, it can be a great idea to lessen the burden of high-interest rates. However, one must be very cautious about the prepayment penalty clauses before making any advance payment to the bank.
Common parameters, which are used in early repayment charges, includes the following things, namely:
- Repayment penalty.
- Prepayment Penalty.
- Early Redemption Fee.
Thus, whenever you think to opt-out a certain amount by paying off the balance amount in advance, your bank will charge a certain prepayment penalty.
RBI clause on prepayment penalty:
The head of all of the banks and NBFC’s, RBI has issued a rule on the Home Loan prepayment penalty not to charge any fee from the consumer. Presently this rule is issued only for the Home Loans running at floating rates of interest.
Few points to follow For Home Loan:
Check with your lender:
If you want to pay off the outstanding loan before the specified period, you need to check with the bank whether the bank is applying any charge on it or not.
Talk to your Lender:
It would help if you asked your financial institution whether it carries a prepayment penalty or not. You can ask your bank for a scheme that can exempt you from a prepayment penalty.
Watch out for the Prepayment Penalty Term:
Before selecting any loan, go with a loan scheme with shorter repayment tenure. Though, you must be sure enough for the duration if you are planning to stay in your new home.
Try to switch over a floating rate:
You can ask your lender if it permits switching your Housing Loan from fixed to floating rates within the specified period. Before paying off the outstanding balance in advance, you can watch to refinance with the help of Home Loan Balance Transfer.
Try to make partial payments:
Some of the banks allow Home Finance borrowers to make partial repayments of the balance amounts to reduce the burden of the total loan amount and the rates of interest. Banks allow up to 25 % prepayment of the outstanding loan amount at once without any penalty.
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