Homebuyers usually take lots of precautions and time while taking a home loan. However, surprisingly, the same intensity is not seen when the time comes to close the loan. Many home-loan borrowers, in fact, heave a sigh of relief once they pay off their last EMI, but they don’t remember to follow the procedural guidelines.
A home loan is a big and long financial commitment. Therefore, one should always make sure that one is closing one’s loan properly and in a well-documented manner.
There are two ways to close your home loan. You can either pay off your loan prematurely or you can let your loan naturally reach the end of its tenure.
Closing home loan prematurely:
If you are planning to close your home loan prematurely, follow the process given below:
1. First, you should write a letter to your bank or housing finance company (HFC) and request about the outstanding amount as on a fixed date.
2. The bank or HFC will then calculate your dues till that fixed date, depending on your loan repayment cycle. The bank may charge you a prepayment penalty or prepayment fee if your home loan is on a fixed rate of interest.
3, Give the bank a 15 to 20-day window for calculating your dues for closing out your loan prematurely.
4. Prepay the loan amount due on or before the stipulated date and confirm the repayment with your bank. You can choose to prepay the amount either as cash or through a cheque. Most people prefer paying off their dues through a cheque as it gives them a documented proof of loan prepayment.
5. Take back post dated cheques (PDCs) you may have issued to the bank after submission of your dues.
6. The bank will issue a loan closure letter or NDC (No Due Certificate) stating that all dues have been repaid and there is no outstanding amount in your name.
7. Take back your original documents from the bank after you obtain the NDC.
8. Get your home loan lien removed, if any.
Closing the loan when is has naturally reached the end of its tenure:
If your home loan has naturally reached the end of its tenure, here’s what you need to do:
1. When you reach the end of your loan tenure, you will need to write a letter to your bank informing them about the end of your loan.
2. The bank will double check your loan repayment and then issue you a No Due Certificate (NDC) mentioning clearly that all the dues for your loan have been repaid.
3. Make sure to double check the NDC document for any mismatch in name of the borrower, the property in question, the address and loan account number.
4. After the bank issues you an NDC, request the bank to release all your property-related documents you have submitted with the bank. Usually, the bank gives you a List of Documents (LOD) that you submit at the time of taking a home loan. Crosscheck the list as you receive the documents submitted for any omissions.
Documents that you need to collect from your bank usually include original sale deed of your property, prior title deeds, power of attorney (if applicable), builder-buyer agreement, property cost break-up (if given), possession letter, payment receipts, any cancelled cheques, any tripartite agreement (if applicable), encumbrance certificate, land and building tax receipts.
5. Check with your bank if they had put a lien on your property. If yes, then you will need to approach the local registrar in your city and get the lien removed. You will need to submit the bank NDC with the local registrar to get the lien removed against your property.
6. You also need to request your bank to inform CIBIL about your successful loan closure. The bank usually informs CIBIL once a month for all loan closures. The bank will inform you once they have shared the details with CIBIL and you can check your credit score to confirm. Any improvement in your credit score is a reflection that the bank of HFC has shared your successful loan closure details with CIBIL.
Thus, taking adequate precautions and following procedural guidelines during the closure of a home loan are a must if you want to avoid any controversy with your bank in the future. However, even this is not enough. After successful closure of the home loan, remember to keep all details of the loan in a safe and secure place for future reference and use.