Home Loan Prepayment: Do I Need to Pay Insurance After Closing the Loan?

Hi sir. We hv taken a home loan of 20 lks in HFFC bank for a period of 15 yrs & the ins amt for abv loan was 2 lcs.we hv been paying monthly emi's + ins emi for nearly 2 yrs & now apart from this we hv remitted 19.5 lakhs for pre closure. Now they are asking the entire ins amt of 2lks for closure. Y shd we pay the ins amt when the loan amt itself is closed??? Pl ans

Ans: The Rs. 2 lakh insurance amount is typically linked to the loan, covering the lender’s risk. Even after loan closure, the full premium may be required due to policy terms. Contact the lender to clarify the payment structure and inquire about any possible refund or adjustment options.

Best Regards,
K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Recently, I took a loan from Axis Bank to consolidate some existing debt. This included pre-closing loans from both Ashleel Bank and Hdfc Bank through a balance transfer. Axis Bank deducted the outstanding balance of the Ashleel Bank loan, processing charges, and general insurance from the loan amount. They provided me with a demand draft (DD) to submit to Hadfaqsi Bank for pre-closure of the existing loan there. The remaining amount from the loan was to be used for personal expenses. Today, when I went to Hadfaqsi Bank to pre-close the loan with the DD, they informed me of additional charges. These included prepayment penalties, interest accrued up to the date, and GST. I ended up paying these extra charges to close the loan. Afterwards, I contacted Axis Bank to inquire why they hadn't informed me about these additional pre-closure charges from Hdfc Bank upfront. Their response was that it's standard practice for banks to charge these fees when pre-closing a loan. While I understand that there might be pre-closure charges, I believe Axis Bank should have included the full amount needed to close the Hdfc Bank loan in the initial DD. This would have allowed me to better plan my finances and avoid the unexpected additional burden. Their lack of transparency about the total cost of pre-closing the Hdfc Bank loan caused me financial stress and disrupted my financial planning. I have paid the extra charges with DD to Hdfc bank and they started the Pre closure of the loan. But they told, the emi will be deducted and will reflect back after the pre clousure process ends. The pre closure of Hdfc Bank loan requires 7 to 10 working days as they told. Also i have to pay new EMI of Axis Bank loan one day before. My mind is blowned up by all this stressful and dissatisfied situations. Note - The loan process by Axis bank was also distressfully long about 2.5 weeks because of unprofessionalism and miscommunication between thier employee's, they made the loan documents two times due to their mistakes. Please help with your genuine guidance. Open to any advices or suggestions. Thank you

Ans: It's evident that you're dealing with a stressful situation involving multiple banks and loans. Let's break down the issues and work through potential solutions step by step.

Understanding the Situation
Loan Consolidation: You took a loan from Axis Bank to consolidate existing debts.
Pre-Closure Fees: You encountered unexpected pre-closure charges from HDFC Bank when you tried to pre-close the loan with a demand draft (DD) provided by Axis Bank.
Communication Issues: Axis Bank did not inform you about these additional charges, leading to financial stress.
Long Processing Time: The loan process with Axis Bank was lengthy and involved mistakes, adding to your distress.
Key Issues Identified
Lack of Transparency: Axis Bank did not provide clear information about the full cost of pre-closing the HDFC Bank loan.
Unexpected Charges: You had to pay additional charges at HDFC Bank for pre-closing the loan, which you were not prepared for.
Communication and Professionalism: The loan processing with Axis Bank was prolonged and marred by errors.
Steps to Address the Issues
Immediate Actions
Document Everything: Keep all the receipts, communication records, and documents related to the loan process and the additional charges you had to pay. This will be crucial for any future disputes or complaints.

Contact Axis Bank Again: Reach out to Axis Bank's customer service or your loan officer. Clearly explain the financial burden caused by the lack of transparency regarding the pre-closure charges. Request a detailed explanation and ask for compensation or a refund of the extra charges incurred due to their oversight.

Monitor Loan Pre-Closure: Since the pre-closure of the HDFC Bank loan requires 7 to 10 working days, monitor this process closely. Ensure that the pre-closure is completed, and verify that the EMI is stopped as promised. Confirm with HDFC Bank that the EMI deducted will be refunded promptly.

Long-Term Actions
Formal Complaint: If Axis Bank does not respond satisfactorily, file a formal complaint with the bank. Follow their grievance redressal process. If necessary, escalate the matter to the Banking Ombudsman for resolution.

Financial Planning: Review your financial plan to account for the unexpected charges. Adjust your budget to accommodate the new EMI payment to Axis Bank and any other financial commitments.

Consider Refinancing: Depending on the response from Axis Bank, you might want to consider refinancing the loan with another bank if better terms and transparent processes are offered. However, be cautious of any pre-closure charges from Axis Bank.

Preventing Future Issues
Detailed Loan Agreement Review: Always review loan agreements in detail before signing. Ask for a breakdown of all potential charges, including pre-closure fees, processing fees, and any other hidden costs.

Research and Compare: Before taking a loan, research different banks and compare their terms. Look for banks with a reputation for transparency and good customer service.

Seek Professional Advice: Consult with a Certified Financial Planner (CFP) before making significant financial decisions. A CFP can provide valuable insights and help you avoid potential pitfalls.

Evaluating Financial Health
Current Debt Management: Ensure that your current debt-to-income ratio is manageable. The goal is to keep your debt repayments within a reasonable percentage of your income to avoid financial strain.

Emergency Fund: Maintain an emergency fund to cover unexpected expenses. This can help you manage unforeseen charges without disrupting your financial planning.

Investment and Savings: Continue to invest and save according to your financial goals. Ensure that your investments are diversified to mitigate risk.

Final Insights
Navigating loans and consolidating debts can be complex and stressful, especially when unexpected charges and delays occur. It's crucial to maintain clear communication with your bank and stay informed about all aspects of your loan agreements. While Axis Bank's lack of transparency has caused financial stress, you can take steps to address the issue and prevent similar situations in the future. Document everything, communicate clearly with the bank, and seek professional advice when needed. With careful planning and informed decision-making, you can manage your finances effectively and work towards financial stability.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in