Things You Need to Know Before Foreclosing Your Home Loan

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Factors You Need to Consider Before Foreclosing Your Home Loan_WC

3 min 16 Apr 2024

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Home Loan Foreclosure
Factors to Consider for Foreclosing

What is Foreclosure?

Foreclosure of a loan means paying the full due amount in a single payment instead of repaying in multiple EMIs. It is important you understand the pros and cons of foreclosing your loan and the correct timing before you proceed with the payment.

Individual borrowers with a floating interest rate Home Loan can consider a cost-benefit analysis at any given time since they do not have to pay any extra charges on foreclosure.

Things You Need to Know Before Foreclosing Your Home Loan

There are no prepayment or foreclosure charges on Home Loans taken by individual borrowers. However, those with a fixed interest rate loan are still subject to prepayment/foreclosure charges. The exact charge varies from lender to lender. Individuals must consider these charges and others before they opt for a Home Loan foreclosure.

Weigh Tax Benefits

Home Loans can help you enjoy tax benefits, given that you fulfil the eligibility parameters. Section 24(b) and Section 80C of the Income Tax Act allow tax deductions as per the old tax regime, concerning 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 Home Loan foreclosing will be beneficial for you at that given time.

Also Read: Know About Tax Savings When Availing a Home Loan

Calculate Expenses in Advance

One should keep track of all short-term and long-term expenditures before opting for a Home Loan foreclosure. These may include a retirement plan, children’s education, emergency contingencies, etc. The foreclosure of a Home Loan should be considered if the borrower has sufficient savings to fulfil these requirements.

Time Your Foreclosure

Choosing the right time to foreclose your Home Loan is important. If you foreclose your Home Loan at an earlier stage of your repayment tenor, you stand to save on the interest accumulation on the principal. At a later stage of your repayment tenor, you are left with only your principal loan amount and foreclosure could mean missing out on the Income Tax benefits.

Also Read: Home Loan Fees and Charges Guide

How to Foreclose a Home Loan

Inform Your Existing Lender

Borrowers should notify the lender to initiate the foreclosure procedure.

Repay the Outstanding Loan Balance

After receiving your request to foreclose the Home Loan, your lender will notify you of the total repayment amount due. Once the payment is complete and confirmed by your lender, you will receive your property documents that are in the lender's custody.

Get an NOC

Getting a No Objection Certificate from your existing lender is important, as it states that a full payment has been made and that you do not have any outstanding balance against your name.

Additional Read: Home Loan Terminologies You Should be Aware Of

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