Tania Jaleel2:02 PM (34 minutes ago)to me
Home loan prepayment charges
A home loan repayment consists of two parts: the principal amount and the interest paid on the loan amount. Both of these components are tax deductible under Sections 80C and 24(b) of the Income Tax Act of 1961.
According to IDFC First bank, “Prepayment penalties are fees you must pay for paying your bills early. When banking firms implement this type of fee, it is to protect themselves from financial losses caused by decreasing interest income. Lenders typically levy a 2-4 per cent fee on the unpaid principal amount at the time of prepayment.”
What is pre-EMI interest?
Many banks provide a unique service that allows customers to select the instalments they want to pay for properties that are still under construction until the time the property is ready for ownership. Any sum the customer pays in addition to the interest is used for repayment of the principal. By making the EMI payments early, the customer gains the benefit of paying off the loan more quickly. Before applying for the loan, please confirm with your banker that this option is accessible.
According to the RBI FAQ, “Sometimes loan is disbursed in installments, depending on the stages of completion of the housing project. Pending final disbursement, you may be required to pay interest only on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI.”
Is pre-payment of loan allowed?
“Most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds – if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI payable on a periodic basis. Please check such stipulations while availing the loan,” according to the RBI FAQ on housing loan.