Finance

Can I forclose or part pay my loan against Property

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One of the best types of loan is a loan against property, as it is offered at an attractive rate of interest and a borrower can borrow a huge sum of money. A mortgage loan is a debt instrument where the immovable property of the buyer secures the loan. Under a Mortgage loan, the borrower gets the credit from the bank or financial institution by pledging the property until he pays back the loan and interest amount. A mortgage loan is also known as a loan against property or claim against the property. You borrowed a loan but you want to repay it or foreclose it as you have received money by selling your another property. Yes, you can easily prepay the amount either partially or in full, before moving on how to let’s first understand what is a foreclosure and part prepayment.

What is foreclosure?

Foreclosure is the full reimbursement of the rest of the advance sum in one single installment as opposed to paying in EMIs. It is a current aspect of your advance cycle wherein you can reimburse the advance before your planned EMI period. You can choose the quantity of EMIs that you have just paid and the month on which you need to abandon your advance. This will assist you with figuring the dispossession sum on Loan against Property.

Let’s understand with an example:-

Loan amount Rs 20,00,000
Tenure 15 years
Interest rate 12.50% p.a

At the end of one year, you paid  Rs.2,71,155, out of which interest you paid is for Rs 2,26,910 and the principal amount is Rs 44, 245. Now your new outstanding amount is Rs 19,55,755. Suppose now you want to repay the full amount Rs 19,55,755, you will be charged with prepayment charges of Rs 39,120 (the charges may vary from bank to bank), the total amount payable will be Rs 19,94,875. If you pay the loan in 15 years then you will end up paying Rs  44,37,079 which is much higher than what you will pay if you do a foreclosure. In short, you saved Rs. 24,42,204.

What part payment of loan?

Part installment of an individual advance happens when you have a single amount measure of inert cash, yet isn’t proportional to the whole head extraordinary advance sum. Part installment works since it cuts down the chief sum unpaid, which thus cuts down your EMIs and the complete intrigue you pay.

Let’s take an example:-

Loan amount Rs 20,00,000
Tenure 15 years
Interest rate 12.50% p.a

At the end of one year, you paid  Rs.2,71,155, out of which interest you paid is for Rs 2,26,910 and the principal amount is Rs 44, 245. Now your new outstanding amount is Rs 19,55,755. Let’s assume that you want to make a part payment of 7 EMIs, your EMI for one month is Rs. 24,650 and as a part payment now you will make a payment of Rs1,72,550. Now your current outstanding amount will be Rs 17,83,205. This will significantly lower the EMI to be paid for the remaining tenor. In such a case, you can talk to your lender to reduce the tenor or reduce the EMIs to be paid further.

Also Read:- Reverse Mortgage

Things to remember:-

  • You can prepay the loan anytime after a minimum of 3 months to a maximum of 12 months
  • Your loan has been sanctioned at a floating rate of interest and not a fixed rate. Almost all loans against property are on floating rates and it is highly unlikely that yours is at a fixed rate
  • Pre-payment charges may be anywhere between 1% to 4% of the loan outstanding, the price can even get reduced if you have paid a certain number of EMIs on time.
  • The loan is sanctioned in the name of one or more individual borrowers and not corporate entities
  • Neither the borrower nor the co-borrower is a corporate entity (ltd. or Pvt. Ltd. company) or a firm (partnership or AOP)
  • Minimal charges are charged in case of part prepayment, which varies from bank to bank

Conclusion: Yes, you can foreclose or part pay the loan against property. For both the servicing lender levies minimal charges but surely, it reduces the outstanding amount in case of foreclosure and reduces tenor or emis if you part to pay the mortgage loan.

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