No Home Loan Preclosure Charges – RBI Bars Bank ?

RBI bars housing finance companies and banks from charging home loan Preclosure charges. It is also advised that if your financial institution charges a foreclosure penalty on home loans, raise a complaint with the branch/RBI Ombudsman. As per RBI guidelines, NBFCs shall not charge foreclosure charges or pre-payment penalties on any floating rate loan products other than business loans to individual borrowers, with or without co-borrowers.

Housing finance companies HFCs)/NBFCs such as Canfin housing finance, HDFC, LIC Housing Finance, Indiabulls Housing Finance and PNB Housing Finance do not charge foreclosure penalties from borrowers. All the commercial banks are already waived the pre closure payment in the home loan.

How to Calculate Preclosure penalties ?

Banks are charging foreclosure penalties in the range of 1-4% on the outstanding principle. For example, if you have a home loan of Rs 50 lakh from a bank, with a tenor of 20 years and 8.50% floating interest rate, your EMI would be Rs 45000 approx. You continued to pay EMIs (equated monthly instalments) for ten years, i.e., 120 months. After ten years of paying your EMIs, you decide to foreclose this outstanding loan. So, in 121^st month, you will pay a foreclosure amount on the outstanding principal, which may be in this case Rs 35.00 lakh approx.. The penalty charges would be 1 o 4% of this outstanding principal.

Now, Banks and NBFCs won’t charge this pre-payment penalties or foreclosure charges from individual borrowers after this RBI notification. So, in this case foreclosure penalty will be savings some money of home loan borrowers. Checkout the Cheapest Home Loan Interest Rates

How to foreclose an existing home loan?

A simple application to your bank or NBFC for foreclosure of home loan with details of your account number and submit a copy of your permanent account number (PAN) and copy of address proof. Verify the foreclosure charges. 

In case your financial institution has charged Home Loan Preclosure Charges then raise a complaint with the branch. If it’s not resolved, then raise a complaint with the banking ombudsman.

Collect original documents

After completing the preclosure formalities, you should collect original property title deeds, no dues certificate and related documents from the financial institution within 7 days.