Are there any penalties for prepayment on a home construction loan?

As per RBI guidelines, financial institutions cannot charge prepayment penalties on floating-rate home loans, including construction loans. This allows borrowers to prepay floating-rate loans fully or partially without any extra charges.

For fixed-rate home construction loans, loan providers need to clearly disclose any applicable prepayment penalties to the customer during the loan sanction process. This enables the borrower to make an informed decision.

The RBI mandates this transparency on prepayment charges and prohibits financial institutions from levying hidden penalties on floating-rate loans to protect borrower interests. However, some may still charge minimal prepayment fees on fixed-rate construction loans within permissible limits.

Therefore, borrowers should thoroughly check the terms for any prepayment charges on their specific fixed or floating-rate construction loan before taking it out. Opting for a floating-rate loan with a loan provider that allows prepayment without penalties can provide better flexibility. If you are considering opting for a home construction loan and need to understand the EMI and the interest payable, use the home construction loan calculator to know the details.