How to Close Home Loan Early?

Buying a home is one of life’s most important goals for many. Home loans, while a crucial financial burden, help fulfill this dream. Paying off home loans early helps save a lot of money in the long run.

To save money on home loan interest payments, you can prepay the entire amount owed or a portion of it. This article will aid you in understanding all the ways you can close your home loan early. 

Home Loan Pre-Closing: 7 Easy Ways

Looking to close your home loan early? The following are the ways to do it:

• Balance Transfer

If you find lower interest rates with other lenders, consider using a Home Loan Balance Transfer facility to significantly cut your interest payments over time.

This can be a useful option if you want to save money on interest. This can also be employed if you are dissatisfied with your existing lender's service.

• Loan Pre-Payments

Pre-payments are one of the easiest options. Making regular prepayments, such as once a year or more, will directly reduce your outstanding principal, allowing you to repay your home loan faster.

This tip is excellent for individuals who don’t want to bear the heavy burden of a home loan for long. However, check the charges for loan pre-payments with your lender before doing so. 

• Higher EMIs

The next tip is to choose larger EMIs appropriate for your financial situation. This quickly reduces your principal and interest, accelerating loan repayment.

Remember that before you opt for higher EMIs, you should also consider your future goals. Take into account every possibility and expense that may arise.

Use a Home Loan EMI Calculator to calculate your EMIs quickly and assess your situation. 

• Shorter Tenor

Another great option is choosing a loan with a shorter term. This can help you avoid the mental and financial load that comes with a longer duration.

While the EMIs may be higher, you will save much on interest throughout the loan's term. Remember to select this choice only if it fits your budget.

• Fixed Interest Rate

A home loan with a fixed interest rate is a wise choice when compared to a loan with a floating interest rate. If you have a home loan with a floating interest rate, then switch to a fixed rate with another bank.

In a floating-interest rate home loan, you pay more money when the lender raises the loan interest rate or when the RBI raises repo rates. Switching to a fixed rate will protect you against rising interest rates.

• Consolidation

In case you have several loans, you can consider consolidating them or merging all loans into one. This may shorten your loan tenure and help you pay off your home loan faster. 

Consolidating loans can help you pay less interest on each loan and save money in the long run. This is an excellent alternative if you have several small loans with high interest rates.

• Tax Benefits

Utilize tax breaks offered under the Income Tax Act of 1961.

Section 80C enables deductions of up to Rs.1.5 Lakh for principal repayment, whereas Section 24(b) allows deductions of up to Rs.2 Lakh for the interest component.

By taking advantage of these tax breaks, you can lower your tax liability while redirecting your savings toward loan prepayments, thereby decreasing the repayment period.

Home Loan Pre-payment: Eligibility

All home loan borrowers are eligible for pre-closing as long as their bank allows it. When you apply for a home loan, make sure you have the option to pay it back early.

Most banks discourage prepayment since it results in a loss. When you pay off a loan ahead of time, banks incur additional costs. This is why, banks charge you a fee if you pre-close your loan.

That being said, you have every right to foreclose on your loan, in part or in full, if it benefits you in the long run. If, even after paying the fine, you save money on your monthly interest payments, it is worthwhile to close the loan.

Things You Should Do After Closing Your Home Loan

Post you close your home loan, you must ensure you collect the following document for a smooth loan closure & home ownership. 

• Get All Original Documentation from the Lender

Collect all of the paperwork provided to the lender while applying for the loan. These documents include the sale deed, title deed, loan agreement, and power of attorney. You should also check that the documents are in good condition and that all pages are intact.

• A ‘No Dues’ Certificate (NDC) from the Lender

One of the most significant documents to gather after loan repayment is the lender's 'No Dues' Certificate (NDC). The NDC declares that all debts have been paid, and the lender has no rights or claims to the property. 

The document should include important details about the housing loan, such as the property address, customer names, loan account numbers, loan amounts, and loan start and closure dates.

• An Updated Non-Encumbrance Certificate

You must obtain an updated Non-Encumbrance Certificate, a legal document including complete records of all financial transactions involving the asset. After you have settled your home loan, the repayment should be indicated in the Non-Encumbrance Certificate.

• Update Your Credit Records

It is important to check to see if your credit reports have been updated following loan repayment. Typically, it takes 20-30 days for the repayment to appear on your credit report. Check your report to see if it is up to date.

If you dream of being a homeowner, It is critical to understand home loans and their payments. Making timely payments, paying higher EMIs, and taking advantage of tax breaks will put you on track to pay off your house loan quickly. Consider refinancing, taking advantage of deductions, and staying disciplined while planning your budget and other financial goals.

You can now apply for affordable home loans from Moneyview starting at just 8.50% per annum. To know more, just visit our website or download the Moneyview app.