Owning a home is a dream for many in our country. Many often, people don’t have enough funds before setting out to build or Buy a Home of their own. In such cases, people usually apply for a loan to manage financing. In fact, home loans are so common that it has become a really popular financing method in the real estate sector. Many a time, Homebuyers cannot afford to pay the whole amount and so they opt for a home loan and repay it little by little over the course of many years. But in case you have enough funds to repay the home loan then it’s better to do it as soon as possible. This is termed as ‘pre-closing’ a loan. As the name suggests, pre-closing is the act of paying off a loan before the fixed tenure date. It is a good option if you have the funds with you but there are lots of aspects to the same that you should know about. Let’s have a look at them:
The benefits: the most obvious benefit that comes with pre-closing a home loan is an advantage of getting rid of the interest rates. Interest rates are an unavoidable part of loans. If you stick to repaying the loan till the tenure date then you will end up paying a much bigger amount than the actual worth of the property. This is solely because of the interest rates. So if you pre-close your loan as early as you can, then you’ll save a lot of money that way.
Penalty used to be a major drawback associated with pre-closing a loan. Repaying the loan before the closing date used to cost you around 3-5% prepayment penalty, but to the borrower’s relief, penalty charges have been negated now, which means that you can actually save quite an amount if you prepay your loan.
The process:
- The first and foremost thing to do is to inform your bank about the decision of pre-closing by sending them a written statement or application.
- Gather all the documents – your property agreement, ID proof, previous payment statements, and all other related documents that you submitted while applying for the loan. In case the bank asks you for more documents, keep them handy as well.
- Once you repay the whole amount, make sure to keep a copy of the cheque as you might need it later.
- Your loan will get closed automatically once you repay the whole amount. Make sure that you get a NOC (No Objection Certificate) to prove that you have no dues pending.
- Make sure to recollect all the original documents submitted to the bank while applying for the loan.
- After receiving the NOC, apply for the EC (Encumbrance Certificate) which includes whole financial records related to your property.
- Once all the procedures related to closing are carried out, make sure to update the closing in your CIBIL records to improve your score. Remind your bank to carry this out.
