Foreclosing a home loan can save you significant interest and reduce financial stress. This blog will take you through everything you need to know about home loan foreclosure to plan your loan prepayment better.
What is Home Loan Foreclosure?
Foreclosure charges are fees imposed by lenders when a borrower repays their loan early. Here are some important points regarding these charges:
- Floating Interest Rate Loans: As per RBI guidelines, no foreclosure charges or prepayment penalties are applicable on floating-rate home loans sanctioned to individual borrowers.
- Fixed Interest Rate Loans: Lenders may impose foreclosure fees on fixed-rate loans, typically up to 2-4% of the outstanding principal amount.
- Administrative Costs: Some lenders charge processing fees for handling foreclosure requests. These vary depending on the institution.
Also Read: Home Loan Foreclosure Guide 2025
Foreclosure Charges on Home Loan by Top Banks
| Bank | Foreclosure charges |
|---|---|
| SBI Bank | 0 – 3% |
| HDFC Bank | 0 – 2% |
| LIC Bank | – Floating: NIL (own funds) – Fixed: 2% (other sources) |
| ICICI Bank | 1. Fixed Rate Loan – ≤ ₹50 lakh – Nil 2. Home Loan (last 1 year) – Any amount – 2% on prepayment of the facility |
| Kotak Mahindra Bank | Nil |
| Punjab National Bank | 1. Floating Rate – Individual – NIL 2. Fixed Rate – Individual – Payment from own sources – Nil Fixed Rate – Individual – Payment by/from third party – 3% of principal prepaid + GST |
| Bank of Baroda | 0 – 2% |
| Bajaj Housing Finance | Nil |
| Axis Bank | 1. Floating Rate Loan – NIL 2. Fixed Rate Loan – 2% of Outstanding Principal/Prepaid Amount |
| Bank Of India | 1. Floating Interest Rates – NIL 2. Fixed Interest Rates – 0.65% – 2% |
| TATA Capital | Nil |
How to Calculate Foreclosure Costs?
Foreclosure costs depend on the following factors:
- Outstanding Principal: The unpaid portion of your loan at the time of foreclosure.
- Foreclosure Charges: As mentioned, these can be a percentage of the outstanding loan.
- Prepayment Amounts: Any prepayments made before foreclosure can reduce the amount payable.
Here’s a simple example:
- Outstanding loan amount: ₹50,00,000
- Foreclosure charge: 3%
Foreclosure cost = ₹50,00,000 + (₹50,00,000 x 3%) = ₹51,50,000
One can also use the online foreclosure calculators provided by lenders to simplify this process.
Read More: How to Save ₹10 Lakhs on Your Home Loan?
How to Apply for Home Loan Foreclosure?
Foreclosing your home loan involves specific steps and documentation. Below is a detailed guide:
- Inform Your Lender
Notify your lender about your intent to foreclose.
- Request a Foreclosure Statement
Obtain the statement to know the exact payable amount.
- Submit Required Documents
Provide the necessary documents listed above.
- Pay the Outstanding Amount
Make the payment via cheque, NEFT/RTGS, or any method approved by your lender.
- Obtain a No Dues Certificate (NDC)
This certificate confirms the closure of your loan.
- Retrieve Original Property Documents
Collect property documents held by the lender as collateral.
Documentation Required
Ensure you have the following documents:
- Loan account statement
- Foreclosure request letter (template available with your lender)
- Proof of prepayment (if applicable)
- Identification proof (Aadhaar, PAN, etc.)
- Post-dated cheques (if used earlier) for cancellation
- Bank account details for fund transfer
Read More: How to Close a Home Loan?
Factors to Consider Before Foreclosing Your Home Loan
While foreclosure can be advantageous, consider the following:
- Impact on Savings: Ensure you have enough funds for emergencies after foreclosure.
- Tax Benefits: Interest paid on home loans provides tax benefits under Section 24(b). Foreclosure ends these benefits.
- Foreclosure Charges: Assess whether the charges outweigh the potential interest savings.
- Other Investment Opportunities: If your savings can earn higher returns elsewhere, consider investing instead of foreclosing.
- Loan Tenure and Interest Rate: Foreclosure is more beneficial in the initial years of a loan when the interest component is higher.
Also Read: Does Foreclosure Affect Your Home Loan Interest?
Conclusion
To conclude, home loan foreclosure is a significant financial decision that can save you interest costs and provide peace of mind. However, it’s crucial to evaluate all associated costs and benefits before proceeding. One must understand the charges, processes, and factors discussed in this blog, to make an informed choice.
Frequently Asked Questions
Prepayment involves partial repayment of the loan before tenure ends, while foreclosure means repaying the full outstanding amount at once.
Yes, you may lose tax benefits under Sections 80C and 24(b) after closing your home loan.
Alternatives include increasing EMI payments or making partial prepayments to reduce interest without fully closing the loan.
The process typically takes 7-21 days depending on documentation and lender policies.
HDFC Home Loan
SBI Home Loan
