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Your Queries – Loans: If you plan to pre-pay your home loan, go for floating interest rate

If you have opted for a floating rate in your home loan/top-up loan, then there is no penalty for pre-payment.

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In cases where a loan is running and the owner would like to liquidate the asset, then the purchaser pays into the loan account first to extinguish the running loan.

By Chaitali Dutta

I plan to take a Rs 40 lakh home loan. Should I opt for a floating interest rate loan? How should I pre-pay the loan to reduce high interest payout? —Avuraj Modiyar
Looking at the inflation rate scenario, globally as well as India, it is likely that there will be an upward pressure on the interest rate, in the future. If you plan to pre-pay the loan and not run the full course of the original tenure of the loan, opt for a floating rate. However, if you are young and this is your dream house which you intend to keep till retirement, then opt for a fixed rate of interest. Here, you will not be able to do part pre-payments without penalty and the effective interest rate for this will be about 150 to 200 bps more than a floating rate.

I have an existing loan for a flat. Now I want to sell that and purchase a bigger flat. Do I have to repay the loan amount to sell the flat? —Gautam Singh
In cases where a loan is running and the owner would like to liquidate the asset, then the purchaser pays into the loan account first to extinguish the running loan. The mortgage of the running lender is released in favour of the lender to the purchaser (in case the purchaser is taking the loan) or directly to the buyer once the purchaser settles all dues to the lender as well as the seller.

I had taken a top-up loan last year on my existing home loan. My existing loan will end after two months. Can I pre-pay some amount of the top-up loan and what will be the penalty? —Pradip Kumar Doshi
If you have opted for a floating rate in your home loan/top-up loan, then there is no penalty for pre-payment. You can go ahead and make some pre-payments.

What is the procession fee for a personal loan and will the interest rate be lower in public sector banks? —Vimal Sarkar
The processing fee differs widely from bank to bank. It may sometimes be negotiable as well. As far as the interest rate is concerned, the public sector banks may offer a cheaper rate, but the eligibility criteria are stringent, and you may get a lower quantum of loan. Usually, when the bank is offering a liberal amount of loan, it may come with a 25-50 bps higher rate.

The writer is founder, AZUKE Personal Finance Advisory (www.azukefinance.com). Send your queries to fepersonalfinance@expressindia.com

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