5 important things to consider before foreclosing your home loan

financialexpress.com:

Home loan foreclosure enables you to pay off home loans well before the scheduled tenure. It allows borrowers to settle the outstanding loan amount in a lump sum, effectively concluding their home loan obligations ahead of time.

Given that home loan repayment typically spans a long duration, circumstances may arise where a borrower’s financial situation improves, making it feasible to clear the loan in one go. Home loan foreclosure offers two significant advantages: it reduces interest payments and ensures a surplus of monthly cash flow. Here’s a quick guide for those considering home loan foreclosure:

According to RBI regulations, borrowers with floating interest rate home loans are not subject to foreclosure fees. If your home loan has a variable interest rate, you won’t be charged any penalties for closing the loan prematurely. However, if your loan has a fixed interest rate, banks may impose a 4-5% foreclosure fee. Fortunately, most home loans today have floating interest rates, reducing the likelihood of foreclosure fees.

Also Read: How does a monthly reducing loan help a home loan borrower?

Although not mandatory, it is advisable to formally inform your bank about your decision to foreclose your home loan at least a week or two in advance. Providing a written notice or sending an email to the branch’s official email address can help prevent last-minute issues caused by human errors.

Foreclosing home loan borrowers should obtain a non-objection certificate (NOC) from their lender. This certificate serves as insurance against future claims of non-repayment by the bank. Additionally, after completing the foreclosure process, request an Encumbrance Certificate (EC), which outlines all financial transactions related