Short termination, prepayment or pre-closure of a home loan means paying the principal amount along with the accrued interest before the end of the loan tenure and closing the loan. Prepayment is a good idea because a home loan eats up money in the form of interest even if the home loan interest rate is affordable. Short termination of a home loan calls for many points that need to be considered. Here’s a quick glimpse of the things to be considered while short terminating a home loan.
Collection of your documents
Make sure that you collect all the documents that you have submitted to your lender. Make a check list and keep a track of the receivables.
Carry all the documents that you need
When you decide to repay your loan amount outright or in part, you may need to produce all the documents that you submitted when you took the loan after your home loan eligibility was calculated through the home loan eligibility calculator.
Refer to your previous Bank statements
Keep a track of your Bank statements that reflect your EMI to calculate the amount which you paid so that you pay only the balance amount during pre-closure.
Estimate what you can save before you repay
When you are under a home loan, you would get tax benefits. So you must know what is profitable, whether continuing with the loan or prepaying. What you save is important.
Get an acknowledgement from your lender
It should clearly state that you have paid the entire loan amount and that you do not have to pay further interest or principal.
Update CIBIL (Credit) record
After you clear the entire loan, do update your CIBIL record as it will significantly increase your credit score and your financial health will be in good order.
Don’t borrow another loan to payback your home loan
It is commonly observed that people take another loan to pay back the existing one. It is advisable not to do so as you might fall under a never ending debt cycle. It can even spoil your CIBIL score.
Don’t be left behind with a financial crunch
When you decide to short terminate your home loan, make sure that you don’t need to compromise on your regular expenses. Also keep enough funds in your Bank to meet with unforeseen expenses that may come your way in future.
Take prepayment penalty into account
Keep in mind that almost all of the financial companies and Banks charge a prepayment penalty when you close your home loan. It is important to be prepared for this.