Things to Consider before Foreclosing Your Home Loan  

Is foreclosing yourhome loan a right step for you? Let’s find out.

Owing to surplus funds or sudden cash inflow, borrowers can choose to foreclose their home loan – as it can cut down the interest outgo and reduce the overall property cost. However,foreclosing the home loan can prove to be counterproductive if not planned carefully.

The downward revisions in foreclosure charges made foreclosing a home loan a lot easier. FollowingRBI’s mandate in April 2012, lenders were asked to forego any foreclosure fee charged to borrowers with floating home loan interest rates.

Earlier, thefee charged was a hefty 5% or more of the outstanding principal amount; but lenders can charge up to 4% or more of the outstanding principal amount for borrowers with fixed home loan interest rates.This move encouraged the borrowers to go for a home loan foreclosure.

Undoubtedly, foreclosing yourloan can bring down your financial burden. Nonetheless, you should consider the following things before foreclosing your home loan.

Savings on EMI Payment

Ideally, only 40% of your monthly income should be directed towards your EMI payments.However, if your monthly house loan EMI payments leave no room for savings, you should consider foreclosing your home loan at the earliest.

Besides, it is better to be vigilant from the start.Always use a home loan EMI calculator to estimate a favourable EMI amount, before taking a home loan. In this way, you can save enough every month without straining your pockets.

Tax Benefits

Home loansoffer favourable tax deductions on both the repayment of home loan interest rates and principal amount. As per ITA, you can claim the following tax benefits:

  • Section 80C – deductions of up to Rs 1.5 lakhs on the principal amount
  • Section 24 – deductions of up to Rs. 2 lakhs for self-occupied property

However, if you decide to foreclose your home loan, you won’t be able to receive these tax benefits. In such a case, it is better to perform a comparison between the tax savings and the interest outgo on your house loan EMI. Go for the better option of the two.

Moreover, you can check for other ways to reduce your taxable income. If that is possible, you can consider foreclosing your home loan.

Financial Obligations

Your house loan EMI isn’t the only financial obligation you have. Therefore, before you decide to use your surplus funds towards foreclosing your home loan, consider other financial obligations.Instead of foreclosing, you can save the funds for other short-term or long-term financial commitments like medical emergencies, retirement fund etc.

Over to You

 You may consider a home loan foreclosure to get rid of the financial burden. Early repayment can make you debt-free sooner and save you money on the house loan EMI payments. Nonetheless, you must assess all the pros and cons before finalising the foreclosure.

For quick and easy home loans, turn to financial institutions offering home loan at attractive interest rates and convenient tenure for better ROIs.

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