You have some extra money and want to foreclose or prepay the home loan. But before making a prepayment, it would be better to consider all the aspects related to it.
It is possible that by investing this amount you will obtain more benefits than the benefits received from the advance payment. Keep in mind that most financial institutions charge the maximum amount of interest during the first few years of the loan. In such a situation, paying early or foreclosing much later will not provide much benefit.
Home loan prepayment fees Most financial institutions offering home loans charge prepayment fees. Currently, there is no penalty for partial or total early repayment of a variable rate home loan. However, banks charge foreclosure fees for fixed-rate home loans. These fees may vary from one bank to another.
According to the rules, if you make an advance payment from your own funds, financial institutions cannot impose a penalty. This penalty can only be imposed if you refinance the home loan with any other institution.
How are prepayment fees imposed?
Percentage of principal: Most financial institutions charge a fixed percentage (between 1% and 3%) of the outstanding principal. Fixed fees: Some financial institutions may set fixed fees. For example, if you make an advance payment of Rs 50,000 in the first and subsequent years, the charges will be less for a few months: In some cases, the bank or finance company may charge the interest on the loan. a few months remaining as a penalty for making an early payment.
Also consider these aspects
Financial goals: Before prepaying a home loan, consider whether you might need a large lump sum in the near future. In such a situation, the amount set for advance payment can be reserved for other financial needs. Investment Opportunities: Generally, home loan interest is low. In such a situation, instead of repaying the home loan in advance, if you invest that amount in an instrument that offers higher returns, then you can get more profits.