5 Easy Steps to Prepay your Loan Against Property

Purchasing a property is not just about buying a dream home or a piece of land. For many, purchasing a property, both commercial and residential, can also be for investment purposes. 

Needless to say, whatever the reason may be, there will only be a select few who can afford to buy such a high-ticket commodity outright. The majority will depend on third-party financing such as a loan against property.

What is a Loan Against Property Prepayment?

Loan against property is available from both public and private sector banks as well as several non-banking financial institutions (NBFCs) like SMFG India Credit.

Evaluating the applicant’s credit profile, the lender can extend up to 70% of the market value of the residential property or 60% of the market value of the commercial premises. The remaining funds have to be borne by the borrower to complete the purchase. With loans up to 5 crores, you can meet all your personal and business needs with ease.

As soon as the loan against property is granted, the borrower will have to start timely repayments, which will have to be completed within the defined loan repayment period. 

However, there is also the option to prepay your loan against property with additional funds to reduce your debts and close it before the originally planned tenure. 

For example, if you received a hefty bonus at the end of the year, dividends from shares/investments, or received a substantial monetary benefit from a family member, you can easily use these sources of funding and pay extra towards your loan against property repayment. 

This option is extremely popular among borrowers who have taken a home loan at a floating rate of interest for non-business needs. At SMFG India Credit, prepayments by such borrowers can be done without having to pay any extra fees, providing that they are using their own funds to make the prepayments and haven’t borrowed the amount from another LAP lender as a part of balance transfer.

This process is commonly referred to as “loan against property prepayment”.

Must Read: How to Choose Ideal Tenure for your Loan Against Property?

What are the 5 Easy Steps to Prepay your Loan Against Property? 

You can prepay your loan against property by following these 5 easy steps. 

Step 1: Check Your Loan Against Property Eligibility for Prepayment First: 

While most lenders allow prepayment of property loans, it is best that you check loan against property eligibility with your respective lending institution if you are eligible to do so. Also, check if the lender levies any prepayment charges or fees on the same. 

Some lenders may not allow prepayment at all if the borrower does not fulfil certain criteria. It is important to know what these criteria are, and ensure that you satisfy the same.

Also, even if you are eligible to make prepayments on your property loan, it is also important to find out if making them a charge at all makes financial sense. 

Step 2: Use the Prepayment Calculator to Determine Your Savings

Lenders like SMFG India Credit have a prepayment calculator available on their website. This is a free tool that helps to assess the amount of savings you will make if you decide to make a prepayment on your loan against property.

The prepayment calculator on the SMFG India Credit website requires you to submit the following details on the application form:

• Loan amount
• Tenure
• Rate of interest
• Number of instalments paid
• Prepayment amount

Simply click on the ‘Calculate’ button and you can see the interest savings from going ahead with a prepayment against the LAP loan. However, do note that the pre-payment calculator is a tool for your understanding, the actual effect of prepayments depends on different factors including the lender’s policy at the time of application. 

Step 3: Know What Special Circumstances Attract Prepayment Charges:

The Reserve Bank of India shares the guidelines on prepayment fees and penalties with all banking and non-banking financial institutions in India. 

You may be charged a penalty on your LAP prepayment if you are a non-individual borrower, have your LAP loan on a fixed interest rate or if the ongoing repayment is on a fixed interest rate despite opting for a dual interest rate loan.

On the other hand, your lender cannot charge a penalty fee on your LAP prepayment if your LAP loan has been availed as an individual on a floating interest rate for non-business purposes, and if you are making the prepayment from your own funds or the repayment is happening on a floating interest rate even if you have chosen a dual-rate loan. 

Step 4: Understand How Prepayment Works on Loan Against Property:

Generally, you have the option to prepay your LAP loan post completing a minimum of 12 months after the loan has been disbursed by the lender. However, this may vary depending on your lending partner, so it is best to get the period clarified directly from them. 

For instance, you can prepay your loan against property at SMFG India Credit after clearing the first 12 months of EMIs. To initiate prepayment on your loan account, you need to follow the given guidelines: 

• Submit the formal request for prepayment with SMFG India Credit. This can be done by emailing at  , calling the customer service desk on the toll free number 1800 103 6001 or visiting the nearest SMFG India Credit branch office.
• Check with SMFG India Credit if you need to submit any additional loan against property documents to process the prepayment. 
• The customer service desk will assign a tentative date by which the LAP loan can be prepaid on receipt of your request. They will assign a unique prepayment ID to identify all communication with you. 
• Once the ID is assigned, you can make the prepayment on your loan against property. This can be done both online and offline. 

Step 5: Other Factors to Consider Before You Decide to Make a Prepayment on Your LAP Loan: 

A prepayment on your loan against property is a decision not to be made in haste. You must take the following factors into consideration before making your final decision.

• If you are nearing the age of retirement, making a bulk prepayment on your loan against property may not be a sound financial decision. Minus a steady income flow, the risk of default is greater which you should avoid at all costs.
• The prepayment on your LAP loan should not make a dent in your savings. 
• If you proceed with the prepayment of your loan against property, you should have a good understanding of the income tax benefits.

Conclusion

If you have adequate means to prepay your LAP loan, keeping all these factors in mind, then you should definitely exercise this option. 

Alternatively, you can carry on with your regular monthly instalments until your repayment tenure comes to an end.