Taking a home loan is a long and tedious process, but so is closing it. This can be done either at the end of the loan tenure or before the specified tenure, if you have some extra funds at hand. To pre pay the loan, you must make sure you have excess funds to make the pre payment and for emergencies so that you are always financially secure.
While submitting your documents to the bank, you must get an acknowledgment letter from the bank stating a list of documents being submitted. This is helpful while closing the loan, if a few documents get misplaced.
Also, any change of address should be communicated to the bank so that all your documents are mailed to the correct address while loan closure.
How to close loan at end of tenure?
If the last EMI and all outstanding dues have been paid, then you need to write a letter to the bank requesting a return of the original documents. If you need any other documents such as invoice copies etc. include this in your letter. Generally, the bank responds to such letters within 7 working days.
The bank will return your original documents and issue a closure letter stating that there is no outstanding amount. It will also give an NOC stating that it no longer has an interest in the property.
If mortgage has been registered, then the no- objection certificate needs to be taken to the Registrar’s Office to get the lien removed. The borrower and a representative of the bank need to be present for this.
However, if the mortgage is not registered, the bank will simply returns the title deeds.
How to Prepay a loan?
To prepay the loan, write a letter to your bank inquiring about the outstanding amount and state a particular date by which you will pay the entire loan amount. If you decide to close your loan in the middle of you repayment cycle, you must find out the interest amount you need to pay. It is best to inform the bank 15 days before your next payment date. If you have given post dated cheques, make sure the bank returns them along with other documents.
Since 2012, the Reserve Bank of India and National Housing Board have banned prepayment penalty on all floating interest rate home loans. However, you will have to pay a prepayment penalty if you have a fixed interest rate home loan.
Regarding hybrid home loans, where the first few years the loan is on fixed interest rate and the remaining tenure is on floating interest rate, prepayment penalty
will apply if you prepay your loan during the fixed rate tenure. But no prepayment penalty is levied if you have crossed the fixed rate tenure and are now paying a floating interest rate.
However, if you have taken a top up loan on your home loan, you will have to pay a prepayment penalty, regardless of fixed/floating interest rate.
Here are a few points you MUST keep in mind while closing your loan:
1. Collect Original Property Papers:
Ensure you collect all original papers submitted to bank as a collateral. Match them with the list of documents received from bank at the time of disbursal.
Typical papers submitted to the bank are :
- Sale Deed
- Conveyance deed
- Builder Buyer Agreement
- Power of Attorney
- Payment Receipts
- Possession Letter
- Transfer Permission
- Tri partite agreement etc.
2. Collect Security Cheques.
When the bank disbursed your loan, it must have taken security cheques in case you defaulted on your EMI payments. Make sure you take these cheques back, once the loan is closed and destroy them to prevent misuse.
3. Get No objection certificate from bank (NOC):
NOC is a legal document that serves as proof of full repayment and closure of loan according to terms of lender. It may also be useful in case you plan to sell off the property. Thus, it is important to get one from your bank.
4. Get Lien Removed:
Lien is the right to keep possession of property belonging to another person until the debt owed by that person is discharged. If the lender delays in doing so, you can get it removed with the help of NOC issued by bank.
5. Update CIBIL (Credit Information Bureau of India Ltd.) Score:
Credit score is the report card of your finances. So once your home loan is closed, you must ensure that your bank updates this information at CIBIL. If not done, you may face problems in future financial transactions or loans.
6. Other Documents:
Lastly, don’t forget to collect other important documents from your bank like;
- Complete loan account statement,
- Principal and interest certificates (help filling your Income tax returns)
While closing a home loan brings in relief and financial stability, it is important to complete all related formalities and procedures with your bank to avoid any complications. Remember, your loan is not closed until your bank gives you a letter clearly stating it is. Just because you have paid your last EMI or full prepayment of outstanding amount, it does not imply loan closure.