Importance Things To Remember While Preclosing Your Home Loan
Written by Ms. Rakhi Narain
Imagine….you have switched over to a new home loan lender…Initially, it seemed you are saving lacs with low-interest rate, offered by the new lender. But later you find out you are making a loss in the long term because the low-interest rate was clubbed with long tenure thereby making your savings balance sheet go negative.
The feeling of repaying your home loan early or transferring the existing balance to a new lender can be satisfying. However, you need to keep in mind certain important things before your home loan preclosure to make out a right decision.
A customer may want to foreclose his account under the following circumstances:
- Balance Transfer to another bank/Financial Institution (FI)
- Availability of sufficient funds to prepay & close loan
- Disposing off the property
In case of the last two cases, not much of concern has to be borne by the customer except obtaining a No Due Certificate from the lending bank/FI along with his/her original documents of the property he/she owns.. However, if the customer closes his account because of a Balance Transfer, he needs to ensure:
1. Effective rate of interest (ROI): One of the main reasons for a customer to switch his account or balance transfer his home loan is better interest rate. Customer must ensure that new rate he is getting is better than the one he is availing at the moment. Customers can also seek better rates from the current lender, considering his payment history & track is good.
2. ROI type: Customer must check if the offered interest rate is floating or fixed; fixed calls for foreclosure charges, if any. Rates can be a combination of both, fixed & floating, basis case type.
3. Processing fee and other charges - Customer has to incur the processing fee & other charges again while transferring the loan. A deep thought has to be put in & all costs have to be calculated well while making a BT
4. Loan tenure: The current lender might charge you a higher interest rate as compared to the offered rate from the new Bank/FI on your Home Loan. However, a customer needs to understand the calculation for the complete tenure of the loan which will give the total interest amount paid. The new lender might give a lower ROI, but with a longer tenure which might effectively charge you much higher interest amount by the end of your loan.
5. No Due Certificate & Original documents: Remember to collect the no dues certificate, unused cheques and original property documents.
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