A lot of people who avail home loans tend to be apprehensive about prepaying their loan mainly because of the penalty charges associated with it. Most of the housing finance companies in India levy a penalty charge on prepayment of home loan; the charges usually range from 1% to 5% of total loan amount. The penalty charges on home loan prepayment are higher in private banks than government banks.
Recently, the NHB (National Housing Bank) issued a notice to all the HFCs in India to ban the home loan prepayment charges. The ban is levied on both floating rate interest loans as well as fixed rate interest loan schemes. If you are planning to prepay your loan, you need to remember the following tips:
Negotiate with the bank
Before you transfer your home loan to prepayment loan, you need to explain the reason to your lender why you want to repay the loan beforehand. If you find the EMI or the interest rate is too high for you to afford, you can negotiate with the lender to get extension in the repayment tenure or reduction in the EMI rate.
Switching your Interest rate scheme
Depending on the housing finance company you choose to avail your home loan, you may get the opportunity to switch your interest scheme. If you have availed loan on fixed interest rate basis and finding it difficult to repay, you can switch to floating interest rate scheme. The floating rate is usually, 1 to 2 percent cheaper than fixed rate home loan.
Prepay partially
If you have budget constraints for full pre-payment and the penalty charges is too for you to pay, then it is best advised to negotiate with the lending institute about partial prepayment. Most of the HFCs in India allow borrowers to prepay maximum of 25% of the total loan amount.
If you have availed home loans from Indiabulls Housing Finance Limited, you would not need to pay any pre-payment charges, not matter if you are making partial or full prepayment.
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