Are there any affect of pre-closing a home loan in CIBIL ?

POSTED BY Muthu ON July 7, 2014 7:08 pm COMMENTS (3)

I took a loan of 25 lacs from HDFC (in the year 2012) for a tenure of 20 yrs. My current outstanding Principle balance is 17 lacs. I read in our forum that pre-closing a home loan will affect the CIBIL rating etc. Below are my questions.

1. I will be able to arrange the amount required to pre-close the home loan in the next 2 to 3 months. Can I go ahead and pre-close it?

2. If there is, what is the best way to pre-close a home loan. Meaning, should I pre-pay the entire 17 lacs and close it in one go or should I pay 16.5 lacs and reduce the principle to 50000/-, make my EMI as 10000 per month, and let the loan amount nullify automatically? Will this make a difference in any way? If so, how?

3. How will pre-closing a home loan affect my CIBIL rating?

4. If any one ask why I want to pre-close the home loan? One reason, I am able to arrange for it. Another, personally, I feel that closing the home loan and getting the house in my name is good rather than the bank having all the docs etc.

Please answer the above ones and clarify my queries.

Thanks

Muthu

3 replies on this article “Are there any affect of pre-closing a home loan in CIBIL ?”

  1. Joker says:

    That clears my questions. Thanks CredExpert. Appreciate your help.

  2. Credexpert says:

    Dear Muthu,

    The answer to your questions are as stated below-

    1)Yes, you can go ahead and pre-close the outstanding loan amount, provided the cost of arranging the amount to be repaid does not exceed the interest rate on the loan amount.

    2)You may pre-close the housing loan as it will stop the unnecessary interest payments.

    3) The pre-closing of the housing loan is going to remove the secured loan outstanding against your name. The CIBIL score typically is calculated based on the mix of total number of secured and unsecured loans. Having secured loans has a better impact on CIBIL score compared to unsecured loans (provided you are repaying on time).
    So removing a secured loan from your account may impact your score positively or negatively depending on the mix of secured and unsecured loans outstanding.

    4)While it is good to clear your outstanding dues but financial decisions should be taken based on the interest amount being repaid , taxation rebates, etc.

    Regards,
    Credexpert
    http://www.credexpert.in

  3. Credexpert says:

    Dear Muthu,
    The answer to your questions are as stated below-

    1)Yes, you can go ahead and pre-close the outstanding loan amount, provided the cost of arranging the amount to be repaid does not exceed the interest rate on the loan amount.

    2)You may pre-close the housing loan as it will stop the unnecessary interest payments.

    3) The pre-closing of the housing loan is going to remove the secured loan outstanding against your name. The CIBIL score typically is calculated based on the mix of total number of secured and unsecured loans. Having secured loans has a better impact on CIBIL score compared to unsecured loans (provided you are repaying on time).
    So removing a secured loan from your account may impact your score positively or negatively depending on the mix of secured and unsecured loans outstanding.

    4)While it is good to clear your outstanding dues but financial decisions should be taken based on the interest amount being repaid , taxation rebates, etc.

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