What are the Prepayment Rules & Requirements on Home Loans?

Most Indians want to purchase at least one piece of real estate in their lifetime. In the majority of cases, it happens to be the home where they spend the rest of their lives with their loved ones.

Needless to say, owning a home for an Indian family is a big undertaking. In order to fulfil this aspiration, most individuals will depend on third party financing, for example, a home loan provider.

While a home loan fulfils the aspiration of becoming a homeowner, it also brings with it a massive debt to the borrower. No doubt there is an assigned repayment period to pay back the loan to the lending partner.

Having said that, if you have access to excess funds during specific times in the year (such as a bonus from work, or a highly lucrative festive season), you can use it to make a prepayment on your home loan. This brings down your financial obligation considerably. But before you proceed, you must be fully aware of the home loan prepayment rules.

Easy Steps to Prepay your Home Loan

Follow these easy steps to prepay your home loan.

Step 1: Check Your Home Loan Prepayment Eligibility First:

Perhaps you have received your annual bonus or a five year fixed deposit that has recently matured. You have substantial cash in hand and therefore you can put it to use towards minimising your home loan debt.

But the question is – can anyone prepay their home loan?

Most lenders will allow you to make a prepayment on your home loan. However, it will be wise to get in touch with your lending partner to know if you are eligible to make the payment or not.

That said, some select lenders may not allow certain borrowers to make a prepayment on the home loan If they do not satisfy certain criteria, such as a certain number of EMIs already paid, etc.

Moreover, even if your eligibility to make a prepayment is confirmed, it is best to ascertain if bearing the prepayment charges is a better option than continuing with your usual schedule of home loan repayment. At Grihashakti, there are no prepayment charges applicable on home loans taken for non business purposes at floating rates of interest.

Step 2: Use the Prepayment Calculator to Determine Your Savings

Before you decide to prepay your home loan it is important to know exactly how much interest you will save on it. This can be easily done with the help of a prepayment calculator.

SMFG Grihashakti prepayment calculator which is freely available to all our website visitors. Borrowers can input the required information to get an estimate on the savings amount on prepayment (in terms of interest outgo) as well as tenure reduction.

On the application form, you will need to provide the following information:

• Loan amount
• Tenure
• Rate of interest
• Instalments paid
• Prepayment amount

Simply click on the ‘Calculate’ button to see the actual interest savings you can earn with a prepayment against your home loan.

Step 3: Understand What Are the Home Loan Prepayment Rules:

Most lending partners will have a certain time period before you can actually make a prepayment on your home loan. Generally, the time frame is at least 12 months of having paid your monthly installments on the home loan.

Having said that, it is best to check with your specific lender on what period applies in your unique case.

To kickstart the prepayment process, you need to do the following:

• Submit a request to your lending partner stating that you wish to make a prepayment on your home loan.
• Check with your lender if you need to submit any additional documents to process the request

Generally, your relationship manager or a representative from the home loan department will get in touch with you and explain the process. If the request is granted, you will typically be able to make the payment either online or by visiting the nearest branch office.

Know About Home Loan Prepayment Charges

Your home loan prepayment can attract a penalty charge from your lender. Generally, the home loan prepayment charges are outlined by the Reserve Bank of India and all bank and non-banking financial institutions are required to follow that.

You need to know under what circumstances will a prepayment penalty be levied on your home loan by your lending partner.

For example, RBI guidelines allow lenders to impose a penalty if you are non-individual borrower. the prepayment penalty could be applicable if the home loan is on a fixed interest rate, or if the ongoing repayment is on a fixed interest rate despite opting for a dual interest rate loan.

On the other hand, your lending partner cannot levy pre-payment charges on your home loan if it was sanctioned on a floating interest rate. Moreover, lenders will not impose a penalty on prepayment if you are using your own funds to make it or the repayment of the home is currently on a floating interest rate even if you have chosen a dual-rate loan.

Things To Be Considered Before Deciding to Prepay Your Housing Loan

You should not decide on a home loan prepayment decision in haste. There are other factors that you should take into consideration before you arrive at a final decision.

• If you are close to retiring, then perhaps making a bulk payout towards your home loan may not be in your best interest. In the absence of a steady income post retirement, you do not want to get into an unnecessary situation that leads to a default on the repayment of your home loan.
• Do not consider a prepayment on your home loan if you have to dive into your savings. It may not be worth it.
• Explore possible income tax benefits on home loan prepayment because you only want to go ahead with this if you can gain substantially by way of income tax exemptions which is available on home loan interest rate payments.

In Conclusion

Prepayment on home loans makes sense if you can reap substantial monetary benefits from it. Therefore, it is essential that you carefully go through the home loan prepayment rules before you make the payout.

If you are an existing SMFG Grihashakti customer, or wish to apply for a home loan, you can contact us and speak to a home loan expert who will be able to guide you through the process.

Must Read: What is the Prepayment Penalty on a Home Loan