Home loan prepayment – Wise things to do!
Buying a house of your own is nothing more than a dream come true. Gone are those days when you had to wait for years and years, saving a lot of money and then buying your own home. Now that almost all the banks offer attractive home loans schemes, it has become very easy for someone to buy their own property. However, many people do face problems in being consistent to pay instalments. In such cases, banks and financial institutions do provide a privilege of home loan prepayment.
Closing a home loan can be considered as another dream coming true as you get your debt free home. Possibly you may not have the burden of putting money in instalments or you may also reap the benefits of enjoying the rental income. Do keep in mind; the home loan prepayment closure must have been done without any mistakes in order to have a stress free life. There have been several cases in the past where, home loan was closed after prepayment but the bank did not provide a no objection certificate or did not remove the lien on the mortgage. In such cases, you may face difficulties in the future if you want to sell your house.
So what exactly is home loan prepayment?
To the readers who still have doubts; it is a debt payment to the lender from whom you have taken money for the home. This payment can be either done in part or full. A typical home loan is for 15 to 20 years, where you have to pay equated monthly instalments to the lending bank. The process of paying the outstanding amount all at one is called home loan closure or home loan prepayment. There is usually a charge which is called prepayment penalty which the lender will charge if you want to settle the payment before the tenure ends. However, as per Reserve Bank of India’s new mandate, banks are now not allowed to collect any penalty on loans with floating rates. This is a huge relief to the borrowers who wish to close their loan before the tenure.
We have compiled a list to things to do when you close your home loan. Let’s have a look:
Get a No Objection Certificate
A No Objection Certificate or simply known as NOC is a sort o a clearance certificate from the lending company which is a proof that the bank now does not have any interest in the property and the home is completely owned by the owner/s. Hypothecation is also removed from the property. When you obtain this certificate, go through it properly and check whether it has all the details such as your name, address, stamp, loan account number, start and end date of the loan, amount borrowed etc. There would be a section which mentions that the borrower has paid all the dues and the property is not free from any debt making sure that the home is entirely yours.
Retrieve all the originals
Once all the payments are settled, the lending company will give your originals documents back to you. Make sure that the documents that you gave to the back at the time of loan application are returned. Properly check all the document and see if there are not any missing pages. Before signing any acknowledgement, cross check that everything is intact. It is advisable to go to the bank and collect the documents in person rather than asking for a courier.
Check for a Credit Update
A very important point to take note: get your credit score updated. Lenders usually do not take mush interest in updating your credit records which in India is governed by CIBIL. Your CIBIL score is a proof of your credit worthiness and is a very important factor when it comes to approval of loans and credit cards. It usually takes about 25 days to complete the process. Make sure that you properly follow up with your lending company for this otherwise it will be ignored.
Removal of lien on property
This happens when the credibility of the borrower is questionable. Banks create a lien when they have doubt whether the borrower would be able to pay or not. A lien in layman’s terms is a transaction which is registered in the registrar office which would restrict you to sell your property to anyone else. If there is any lien on property, then it has to be removed. In case there is lien, a bank official will take you to the registrar’s office and end the lien. You have to get it terminated or else you will not be able to sell the property in the future.
Obtain a legal clearance certificate
This one is advisable but not compulsory. A legal clearance certificate from a lawyer will help you in speeding up the process of selling your house. This also helps in getting a legal opinion from the lawyer that the home loan closure is complete and your house is debt free. Some people don’t go for this but we have kept it in our list so that you are 100% sure about your property.
Keep all records and documents handy
Most of us tend to ignore this but keeping a track of all your payments along with lump sum payments has to be maintained. Always keep photocopies of the payment receipts and make sure you store them in a safe place. This will ensure that all the documents and payment receipts are at a place and you can show them immediately if required.
Don’t forget to get a new EC
Confused? EC is an encumbrance certificate which has the details of all the financial transactions done on your property. You can get an EC once the bank has provided you the No Objection Certificate and after your property is cleared from any existing lien. Application of an EC has to be done in the Registrar’s office. Do not take this step lightly. An EC is a very important document which you must have to complete the home loan prepayment process.
In today’s day and age, when people have become more aware about the workings of any organisation, it is evident that informed customers may take decisions as per their choice and comfort. Earlier banks used to discourage borrowers of doing prepayment if he/she is not able to visit the bank physically. However, this is not true and there is no clause regarding the same. The points mentioned in the article will not only help you in understanding about home loan closure but will also help you to know what to do and when.
Just paying off your home loan is just not enough! There are various other things that need to be done in order to get the procedure completed. If you are not aware of certain things, do not hesitate to seek professional assistance. It is better to spend some money and get advice rather than wasting hard earned money by not understanding the terms and conditions properly. Think wisely and act accordingly. Do not be in a hurry to close if you do not have enough funds right now. It is better to wait and then close it later when you are financially strong.
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