While home loans provide the much-needed financial support for securing a comfortable living space for your loved ones, they come with a significant long-term commitment. Loan tenures can go up to 30 years, which can lead to substantial interest costs.

Thus, foreclosing on your home loan can be a wise decision. By doing so, you can free up cash flow for other investments or financial goals and reduce your debt burden faster.

However, before taking this step, it’s important to understand the foreclosure or prepayment charges that may apply.

In this article, we will explain home loan foreclosure charges and discuss whether it’s possible to avoid prepayment fees on home loans.

What Are Foreclosure Charges in Home Loans?

Foreclosure charges are fees imposed by lenders when a borrower decides to pay off their home loan before the end of the agreed tenure. These charges are meant to compensate the lender for the loss of interest income that would have been earned if the loan had continued for its full term.
The foreclosure charges on home loans in India can vary depending on the lender’s policies and the terms of the loan agreement. In some cases, the charges may be a flat fee, which is a fixed amount that the borrower has to pay. In other cases, the foreclosure charges are calculated as a percentage of the outstanding loan balance. This percentage can vary between lenders, and some may have higher early repayment charges on home loans.
Understanding foreclosure charges is crucial for borrowers, as they can significantly impact the financial benefits of prepaying or foreclosing a home loan. Knowing the exact terms and conditions set by your lender will help you make an informed decision and avoid unexpected costs.

How to Avoid Home Loan Foreclosure Fees

Foreclosure penalties on home loans in India depend on the type of interest rate you have – fixed or floating.

According to the Reserve Bank of India (RBI) guidelines, lenders cannot impose foreclosure or prepayment charges on home loans with floating interest rates. This means you can foreclose such loans without incurring additional fees.
On the other hand, foreclosure charges may apply to fixed-rate loans, depending on the lender’s policies. To avoid or minimise these fees, it’s important to check whether your lender offers any flexibility, such as waiving charges after a certain period of repayment.

Apply Now

Conclusion

Understanding foreclosure charges and planning your loan repayment strategy accordingly can lead to significant savings. Before deciding to foreclose your home loan, carefully evaluate the charges involved and weigh them against the potential benefits. If you have a floating-rate loan, you can benefit from the RBI's rule, which allows prepayment without additional charges. For fixed-rate loans, it’s advisable to time your foreclosure when charges are minimal or consider negotiating with your lender for better terms.

At SMFG Grihashakti, we offer home loans with competitive floating interest rates, linked to the Retail Prime Lending Rate. This provides you with the flexibility to make part prepayments or prepayments to reduce your principal faster, without incurring additional costs. Check your eligibility, estimate your EMIs, and apply online for loans of up to INR 1 crore*!