Home loan foreclosure is the process by which a home loan borrower can close his/her home loan at an earlier date than the one agreed upon in the home loan contract. By paying a lump sum or increased amount as EMIs, a borrower can reduce the total duration of his/her liability, effectively reducing the home loan tenure. Events like an increase in income, or an unexpected influx of wealth, can tempt home loan borrowers to end their obligation toward the bank sooner than originally planned.
While this is of great benefit to the borrower, the lending bank could stand to lose out on a portion of its potential interest income – and also suffers the general complications that arise from having to recalculate total future profits, etc. when a home loan is closed earlier than agreed upon.
When can a home loan be foreclosed?
Depending on whether there is a clause permitting foreclosure in the home loan document from ICICI, the home loan can be foreclosed in the following scenarios:
When a borrower is the recipient of a large sum of money
If a home loan borrower comes to own a large sum of money through winnings, lottery, gift, bequeathment, commissions, etc. one can use these funds to foreclose or pre-pay his/her home loan in part or in full by paying a lump sum amount. The outstanding balance of the home loan after an unplanned lump sum pre-payment (if any) will be repaid through re-negotiated EMIs in most cases.
When the borrower receives an increase in monthly income
Employees in companies and corporates receive regular increments to their salaries which are sometimes factored into their home loan repayment plan at the time of taking the home loan. In most cases, however, the current income (based on which the home loan documents are created) is considered to be the income throughout the home loan tenure. Despite this, many home loan borrowers renegotiate their repayment contracts when they receive higher incomes, or notice higher regular profits in business as self-employed professionals. However, to renegotiate the EMI the borrower will have to contact the bank manager, explain the scenario and work out a regularly payable EMI amount.
On the event of profit from sale of immovable property
When the borrower profits from sale of fixed property, he/she can use these funds to repay the home loan balance to the lending bank and foreclose/pre-pay the loan account.
What are the home loan foreclosure (prepayment) guidelines as per Reserve Bank of India?
According to the RBI Guidelines for foreclosure, the official statement of RBI on 2nd August 2019 says, “It is clarified that NBFCs shall not charge foreclosure charges/pre-payment penalties on any floating rate term loan sanctioned for purposes other than business to individual borrowers, with or without co-obligant(s). The Non-Banking Financial Company – Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 and the Non-Banking Financial Company – Non-Systemically Important Non-Deposit taking Company (Reserve Bank) Directions, 2016 have accordingly been updated.”
Before the above-mentioned mandate was passed, borrowers had to pay a charge of 1-5% on the outstanding loan amount during foreclosure. After the official statement was given, foreclosure on any home loan with floating interest rate did not carry a charge. For home loans with fixed interest rates, a foreclosure charge of 2% is levied in most cases.
Steps to foreclose your ICICI Bank home loan:
To foreclose your ICICI bank home loan, you can follow this procedure:
Step 1 – Send a cheque to your Power of Attorney (POA) favouring ICICI bank. Please note that international customers will have to send the cheque in Indian Rupees.
Step 2 – Write a cover letter mentioning your home loan application number. This number can be found in your home loan application form copy or offer letter of your home loan. It can also be mentioned as LAN number.
Step 3 – Your home loan Power of Attorney (POA) should submit the cheque and cover letter to ICICI bank branch.
Step 4 – Foreclosure application will be processed by ICICI bank representatives. Once it is complete, a foreclosure letter will be sent by courier to the residential/office/current address provided in your home loan application form.
To get more details on how to foreclose your home loan online, call Fincity customer support at 080-47188010.
Foreclosure/pre-payment charges on ICICI bank home loan:
ICICI bank levies foreclosure charges based on the home loan plan taken and factors in the applicable interest rate as well. Please refer to the table below to gain an understanding of when foreclosure charges are applied:
Home loan plan and interest rates
Home improvement loan, land loan and home loan taken on floating interest rate
On full repayment of home improvement loan, land loan, top-up home loan and home loan taken on fixed interest rate
2% on outstanding principal amount* + 18% GST
On full repayment of top-up home loan taken for business purposes
2% on outstanding principal amount* + 18% GST
On full repayment of home equity loan, office premises loan, lease rental discounting loan – business purpose loans
4% on outstanding principal amount* + 18% GST
On full repayment of home equity loan, office premises loan, lease rental discounting loan with fixed interest rate
4% on outstanding principal amount* + 18% GST
ICICI Bank home loan foreclosure FAQs
Can I foreclose my ICICI bank home loan? If so, what are the charges?
Yes, you can foreclose your ICICI bank home loan before the home loan tenure expires. Usually, the charges on ICICI bank home loan foreclosure is 2% on the loan amount that is outstanding, and any other prepaid loan amount in the last 12 months – depending on whether your home loan is taken on a fixed or floating rate of interest and other factors. Call Fincity customer support at 080-47188010 for more details.
What is the procedure to foreclose my ICICI bank home loan?
In order to foreclose your ICICI bank home loan, send a cheque to your Power of Attorney favouring ICICI bank. For home loan customers who are overseas will have to send the cheque in Indian Rupees (INR) currency for home loan foreclosure. Accompanying the cheque, should be a cover letter that mentions your LAN number or home loan application number with ICICI bank. These documents should then be submitted by your Power of Attorney to any branch in India. Once foreclosure is processed by the bank, ICICI bank will send a letter to the residential address given in the home loan application. Refer to the step-by-step process above, or get in touch with Fincity at 080-47188010 or email us at email@example.com.
How and when will I receive my property documents after my home loan with ICICI bank is foreclosed?
Once your home loan with ICICI bank is closed, your Power of Attorney (POA) can collect all the original documents of your property from any ICICI bank branch after verification of identity.
What does home loan foreclosure or prepayment mean?
When a loan borrower closes his loan account with the lender before the loan tenure is complete, it is a foreclosure. Meaning that if your agreed loan tenure is 20 years, but you have the money to clear it off any time before that, you can.
What are the foreclosure charges on my ICICI bank home loan?
There are no foreclosure charges on: Home improvement loan, land loan and home loan taken on floating interest rate. However, there is a charge of 2% on the outstanding Principal (+18% GST) on full repayment of home improvement loan, land loan, top-up home loan and home loan taken on fixed interest rate and on full repayment of top-up home loan taken for business purposes. There is a charge of 4% on outstanding Principal (+18% GST) on full repayment of home equity loan, office premises loan, lease rental discounting loan – business purpose loans. On full repayment of home equity loan, office premises loan, lease rental discounting loan with fixed interest rate, the foreclosure charges are 4% on outstanding Principal (+ 18% GST). There is 2% on outstanding Principal (+ 18% GST) on full repayment of top-up home loan taken for business purposes.
Does ICICI bank issue No Objection Certificate (NOC) when I foreclose my home loan account?
Yes, ICICI bank issues No Objection certificate on foreclosure of your home loan. No Objection Certificate (NOC) is one of the most important documents to collect from the lender when closing your loan account. It is a legal proof that the borrower has paid his/her home loans dues in full to the bank and does not owe anything. If there is any error in the CIBIL report, it can be corrected by submitting the No Objection Certificate.
How to get Encumbrance Certificate (EC)?
After you apply for foreclosure of your home loan with ICICI bank, you will receive No Objection Certificate (NOC) from the bank. After collecting your NOC, you can visit the nearest Registrar’s office and request them for an Encumbrance Certificate.
*Fluctuating variable information represented here – contingent upon regulatory and market factors like all forms of amounts, variables, rates, percentages, tenures, products, fees, criteria, links, references, Sections of Acts, etc. – are subject to change in events like – revision/addition of RBI guidelines, revision of policies at the bank level, new information becoming available, etc. – and consequently the views and opinions shared here are of the writer’s inference of the most recently updated information as understood from authentic and reliable sources on the internet at the time of writing. Readers are advised that all end-case forms of amounts, variables, rates, percentages, tenures, products, criteria, fees, references, advice, etc. are contingent on external factors that are subject to change over time.