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Things You Need to Know Before Foreclosing Your Home Loan
Using a home loan foreclosure calculator
How to foreclose a home loan
Foreclosure of a loan means paying the full due amount in a single payment instead of
repaying in multiple EMIs. It may
be a wise decision to foreclose an existing home loan, as it can significantly reduce
the burden of paying a hefty
interest, as well as the overall cost of the property while preserving the value of the
asset. Nevertheless, foreclosure
of a home loan can also be a bit tricky, especially for those who are unaware or not
familiar with the details of the
procedure. Without proper knowledge and planning, the decision to foreclose a home loan
The home loan balance transfer is a credit facility that allows the transfer of an active
home loan amount to a
different lender. This is possible when you do not like the disposition of your current
lender or when it feels like you
are paying a greater amount than EMI. The home loan balance transfer via Bajaj Housing
Finance guarantees you a
stress-free experience and what's needed is the information of your current home loans
like the borrower’s name and
exact loan amount to be moved between banks.
Earlier, a foreclosure fee of 5% or more would be charged on the outstanding principal
with a floating rate of interest.
This made a prepayment of the home loan quite expensive. However, the 2021 Regulations
of the Reserve Bank of India
restricts any lender from charging fees for home loan foreclosure on a floating home loan interest rate.
If the borrower has a home loan at a fixed interest rate, he/she may be charged 4% on
the outstanding amount when
foreclosing the loan. In such cases, it would be wise to choose a balance transfer with
a reputed lender, who would
provide the best interest and a top-up plan. With the option of a balance transfer, one
may consider home loan
foreclosure if there is a sudden cash inflow or huge savings in place. Before
deciding, the following points must be
kept in mind:
With a home loan comes tax benefits. Section 24 and Section 80C of the Income Tax Act
allows tax deductions owing to the
repayment of interest and principal, respectively. Foreclosure of a home loan would mean
leaving behind all these
benefits. Therefore, it would be wise to first map out one’s taxable income and see if
there’s a possibility of claiming
savings under different ITA sections in the absence of a housing loan. If there are
alternatives to reduce taxable
income, then one can surely go ahead with home loan foreclosure.
Your monthly income should meet your regular expenses, as well as desires. When planning
a monthly budget, be sure to
make a chunk of it go into savings and investments to bolster one’s finances. Keeping
that in mind that the equated
monthly instalments or EMIs should not exceed 40% of your monthly income. Selecting low
EMIs can help save a big amount
every month. In case the EMIs seem hefty and do not leave enough room for savings, one
should consider foreclosing the
It may be a good idea to keep track of all short-term and long-term expenditures before
opting for home loan
foreclosure. These should ideally include a retirement plan, children’s education,
wedding, vacations, emergency
contingencies etc. Foreclosure of a home
loan should only be considered if the borrower has sufficient savings to fulfil
It is always advisable to plan in advance. This will help save funds for foreclosure and
figure out how to utilize
excess funds in a more organized manner instead of making hasty decisions. One of the
smartest things to do is to make
use of an Online Loan Repayment Calculator to monitor savings when going for foreclosure
of a home loan.
Instead of using money to foreclose a loan, an individual may consider investing the
same. To decide which option is
more lucrative, evaluate the projected returns from investment and compare them with the
total interest outflow during
the same time. Ideally, one should consider foreclosing if the interest obligations
weigh more than investment
Using an online calculator is simple. All that is needed are the following details:
For instance, if the loan tenor is 5 years i.e. 60 months, and the borrower plans to pay
off all the remaining amount
after 3 years and 4 months i.e. during the 40th month, then the 40th month is referred
to as the foreclosure month.
The steps to foreclosing a home loan are as follows:
Formal notice must be sent to the lender in advance to initiate the foreclosure
All the paperwork – EMI payment receipts and loan agreement papers -- must be kept handy for verification to make sure
the process goes on smoothly.
The borrower should be present in-person to verify and assess all the documentation and payments.
Getting a ‘No Objection Certificate’ from a bank or NBFC is crucial, as it states the borrower has made full payment and
does not have any outstanding balance in his/her name.
After the foreclosure, the borrower will need to get the lien (if any) terminated to be able to sell the property.
Be sure to retrieve any submitted post-dated security cheques from the lender once the home loan is closed.
Following the home loan closure, one can get an Encumbrance Certificate stating all transactions made concerning the
property in question. The EC also validates that the property is free of any legal or monetary liabilities.
Be sure to collect all necessary documents submitted at the time of the loan application.
Before you start the process of foreclosing your home loan, start researching the same - read about the benefits of
foreclosure of home loans, and understand the detailed procedure.
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