Things to remember while closing a Home Loan
Many people jump at the first opportunity to pay off their mortgage. There is a strong sense of relief and pride that one achieves in paying off a home loan and officially calling the property theirs. With the recent announcement by the RBI and NHB extending the elimination of prepayment charges for home loan foreclosure, home loan borrowers have been further encouraged to pay off their mortgages before the end of the tenure.
Before foreclosing the loan, we need to realize that just paying off the pending payment to our lending partners is not enough and does not finish our duty. There are procedures the borrower must follow and keep in mind to ensure a smooth foreclosure and avoid any impact on future home loans. Here is a checklist to ensure a seamless and trouble-free foreclosure.
Know & Pay the Exact Outstanding Principle Amount
It is always advisable to understand the norms of the bank while pre paying the loan. It is integral for the borrower to check with the bank on the exact outstanding amount; this amount can also be found on the closure statement given by the lender. One should not assume an approximate figure, as even a difference of Rs 100/- will be seen as outstanding, and worse, this amount will increase over a period of time with interest. This can have an adverse impact on your CIBIL score, and affect your future borrowings.
Do Not Refuse To Pay the Extra Interest the Lender Demands
The lender will add on an extra interest of 4-5 days while closing your loan. This interest is to balance the amount of time it will take for the DD/cheque to clear and the time to process the foreclosure. Instead of disputing this with the lender, it is better to pay off this extra interest and ensure a seamless foreclosure of your loan.
Collect original documents
When a home loan is disbursed, there are certain original papers submitted to the bank. The borrower should draft an official letter to the lender requesting all the original documents be returned to them. These documents would primarily include the property title papers, indemnity, contract, guarantee papers, and any other collateral. You should not expect the lender to be responsible for these original documents and send them to your home. This expectation can land you in deep trouble later, and hence, it is better you ensure all the original papers are taken into your custody.
Obtain Closure Statement & NOC
The borrower should always remember to collect a closure statement from the bank which states that all dues have been paid and shows a nil balance statement from the lender. It is essential to have this document in your possession in case you have to prove that the loan is closed and had no dues in the future. This statement will prove that there are no dues pending and the loan is completely closed.
Take Back Your Security Cheques:
Most banks ask borrowers to give multiple blank post-dated cheques at the time of sanctioning the home loan as a security. These cheques help recover money in case of any EMI defaults. Therefore, one must immediately collect the post-dated cheques from the bank as soon as the loan is closed to prevent any chance of misuse.
Above all, communication is the key to avoid any mishaps. One should understand the terms and conditions of each lender and ensure that they take the steps above while foreclosing a mortgage. A borrower should never depend on the bank to follow this checklist and instead proactively make sure the foreclosure is trouble-free, now and in the future. If there are any doubts, it is better to consult an advisor than risk problems in the future due to a minor oversight.