Understanding Home Loan Foreclosure Charges | ICICI Bank Blogs

Types of Home Loan closures

There are various types of Home Loan closures: 

1. Regular Repayment: Borrowers make monthly payments consisting of principal and interest until the loan is fully repaid

2. Prepayment: Borrowers have the option to repay the loan partially or in full before the scheduled tenure, reducing total interest costs

3. Balloon Payment: A large lump sum payment is made at the end of the loan term to settle the outstanding balance

4. Loan Transfer or Balance Transfer: Borrowers may transfer their Home Loan to another lender to benefit from better terms or lower interest rates

5. Loan Closure on Property Sale: The loan is closed using proceeds from selling the property for which the loan was taken

6. Loan Closure through Foreclosure: Borrowers repay the entire outstanding loan amount before the scheduled tenure, often when a significant sum becomes available.

What are Home Loan foreclosure charges?

Home Loan foreclosure charges are basically fees imposed by lenders when borrowers choose to repay the entire outstanding loan amount before the scheduled tenure. These charges vary depending on the lender and the terms of the loan agreement. Typically, foreclosure charges range from 2% to 5% of the outstanding principal amount. Additionally, lenders may also charge additional administrative or processing fees. Borrowers should review the Terms and Conditions of their Home Loan agreement to understand foreclosure charges on their specific loan.

Documents required after Home Loan foreclosure

After Home Loan foreclosure, borrowers typically need to collect several documents, including:

1. No-Objection Certificate (NOC) from the lender confirming the loan closure

2. Original property documents pledged as collateral

3. Foreclosure statement detailing the final loan amount and charges paid

4. Receipt of the final payment made towards the loan

5. Any other documents specified by the lender or local regulations.

FAQs

Is there any penalty for foreclosure of a Home Loan?

Yes, there is usually a penalty for Home Loan foreclosure depending on the type of interest rate (fixed or floating), typically ranging from <2>% to 5% of the outstanding principal amount.

Is it wise to foreclose Home Loan?

This depends on individual financial circumstances, including available funds and future goals.

Is it mandatory to pay foreclosure charges?

Borrowers are typically required to pay foreclosure charges as per the terms of their loan agreement.

Is Home Loan prepayment a good idea?

Yes, you can close your Home Loan before the scheduled tenure, but foreclosure charges may apply.