What is the definition of Own Source in Loan Prepayment

POSTED BY Shaahul Hameed ON October 11, 2012 10:35 am COMMENTS (8)

I have taken a home Loan for 28.5 lacs in SBI. I got 6 Lacs from my father and I am thinking of prepaying my Loan. Since my loan disbursement is not over, SBI said that I cannot prepay now and should have to wait till the disbursement is over(4 more months to go). I had already invested this amount in ultra short term funds and will continue till the loan disbursement is over.

 

The questions are,

 

1. Can I use this amount to prepay the loan without any prepayment charge(as the bank says that I can prepay the loan without any charge if it is from my own source. Not sure on the terms that come under “own source”)

 

2. If I have to pay any charge for prepayment, I am thinking of not touching my salary for 4 months and taking my monthly expense from the 6 Lacs. In that way, I would be prepaying the loan from my Own source. If this is the case, Can I invest my salary somewhere without deviating from the term “Own source”(Will the bank accept this?)

 

8 replies on this article “What is the definition of Own Source in Loan Prepayment”

  1. Muthu Krishnan V says:

    hi shaahul,
    Why do you think banks would not allow? Instead of making assumptions, decide about what is best for you alone (which in my opinion is to ask the bank not to disburse the left-over amount and thereby treat it as fully disbursed and make them take the pre-payment without any penalty). SBI is a HUGE Bank and they would have a lot of people to worry about what to allow or not allow :).

    Go to the bank directly and not through any agent. Also call up SBI Home loans division to get clarification and irrespective of what they say go to the SBI branch and try to get your things done.

    Thanks,
    Muthu

  2. Shaahul Hameed says:

    Guys,

    Thanks for your inputs.

    My apartment construction is still going on and that is the reason why the disbursement is not over. Do the banks even agree to allow prepayment before the possession of the property?

  3. Dominic Prakash says:

    I agree with @ Credexpert.

    Here in your case the agent may not like to reduce the loan amount. You are actually reducing his target :). Send a formal letter with acknowledgement and surely they will act.

  4. Credexpert says:

    Reduce your loan amount by the undisbursed portion and use the money from your father to pay the developer when the time comes to do so.Once you have reduced the loan amount by this Rs 1.5 lacs, the loan will effectively be fully disbursed and you can use the balance Rs 4.5 lacs, to repay and thus reduce the interest and your cash flow burden.

    The money from your father can certainly be taken as your own sources and the bank should not question that – SBI may have its own definition , in which case ask for that in writing to be clear what the definition is.

  5. Muthu Krishnan V says:

    in that case go to sbi, ask them to stop any further disbursement ( there is some term for that forgot it) and immediately after this you can prepay the loan. I am not aware of sbi’s version of “own sources”. update us after this.

  6. BanyanFA says:

    Some banks are very punitive when it comes to ‘Own source’. It should not be from your friends / family / home loans / personal loan from other banks, etc.

    Ideally they want you to use your own personal savings to pre-pay ! How / why does it matter to the bank ??? This is always a big open question. Perhaps to prevent customers from shifting loan from one bank to another in search for a good deal.

  7. Shaahul Hameed says:

    Hi Muthu Krishnan,

    Thanks for your reply. That really helps!!

    98 % of my loan disbursement is already over. The remaining loan amount is only around 1.5 Lacs. I am thinking to pay from our source.

  8. Muthu Krishnan V says:

    if loan disbursement is not over and you are not in need of the remaining amount, you can ask the bank to not disburse the remaining amount, you have to provide them a letter for this. (I have done this with IDBI).

    “own sources” is debatable. It should not happen that you take a housing loan from some other bank and then use it to preclose the loan. They will ask for your 6 month bank statement from only the bank that you are paying the amount from and check if there is any credit from financial institutions. 6L from your father can be treated as a gift and is definitely “own source”.

    you can use your salary any which way you want. banks have no right to question it.

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