LoansFinancial Glossary
Foreclosure
Definition
The repayment of a loan's entire outstanding amount before the end of the loan tenure, also called prepayment or early closure. On floating-rate home loans, RBI mandates zero foreclosure charges for individual borrowers. On fixed-rate and commercial loans, lenders can charge 2-4% of the outstanding balance.
Why It Matters
Foreclosing a loan early — especially a home loan — can save lakhs in interest. On a Rs 50 lakh, 20-year home loan at 8.5%, foreclosing in year 10 saves approximately Rs 22 lakh in future interest. The best time to make extra payments is in the early years when the interest component is highest.