Home loan prepayment and foreclosure charges: what you can be charged

For most people reading this, the answer is: nothing. If you have a floating-rate home loan in your own name from a bank or an NBFC, your lender is not permitted to charge you for prepaying part of it or for closing it entirely. That has been the position for floating-rate home loans to individual borrowers for over a decade, and it was widened in 2025. The rest of this guide is about the cases where it is not that simple, and about how to confirm which case you are in.

What changed on 1 January 2026

The Reserve Bank of India issued the Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025 on 2 July 2025. They apply to loans sanctioned or renewed on or after 1 January 2026, and they are prospective. They also repealed the older circulars that first barred these charges, but an older loan did not lose its protection: RBI carried the same bar into its November 2025 Responsible Business Conduct Directions for floating-rate term loans to individuals, for purposes other than business, sanctioned on or before 31 December 2025.

The Directions were issued because practice across lenders had become inconsistent, and because prepayment charges were operating as a deterrent to refinancing — a borrower who cannot leave without paying to leave is not really shopping for a better rate. Broadly, for floating-rate loans they establish that:

• For loans to individuals for purposes other than business, no pre-payment charges may be levied, with or without co-obligants.
• It does not matter where the money came from. There is no distinction between prepaying from your own funds and prepaying by refinancing elsewhere.
• It applies to partial prepayment as well as full closure.
• There is no minimum lock-in period. A lender cannot require you to hold the loan for a year before prepaying without charge.
• For business-purpose loans to individuals and to micro and small enterprises, the same bar applies, though for certain smaller lender categories it is limited to loans up to a sanctioned limit of ₹50 lakh.

What can still cost you money

The prepayment charge is the headline item, but it is rarely the only line on a closure. Charges that are not prepayment charges are not covered by the bar, and some of them are legitimate:

How to check what applies to your loan

1. Find your sanction letter and confirm two things: whether the rate is floating or fixed, and the sanction date. Those two facts determine which rules govern you.
2. Find your lender's current schedule of charges. Every bank and NBFC publishes one, usually under "Fair Practices Code" or "Service Charges" on their website, and they are required to keep it current.
3. Ask for a written foreclosure or part-payment statement before paying. It should itemise the payoff amount, every charge, and the date to which it is valid.
4. If a charge appears that you believe should not, raise it with the lender's grievance officer in writing. If that does not resolve it, the RBI Integrated Ombudsman Scheme exists for exactly this and costs nothing to use.

The paperwork to collect when you close

This is the part that causes real problems years later, and none of it is optional. On the day you close the loan, collect:

• The No Objection Certificate and the loan closure letter.
• Every original property document the lender has been holding. Check the list against what you gave them at disbursement, page by page, before you leave.
• Written confirmation that the lender has released its charge on the property — including the MODT reversal or equivalent with the sub-registrar, where one was registered.
• Confirmation that the account has been reported as closed to the credit bureaus. Check your own credit report a month later; a closed loan still showing as active is common and is much easier to fix while the closure is recent.