Home Loan is that credit instrument which helps us to purchase our own home. A study says that more than 80% of the people living in urban areas go with home loan to buy their home. Most of the people are so excited and pleased to have it and some are much eager to pay it off. This eagerness is because of the burden and tension which home loan brings with it. Paying off your Home Loan fully brings moment of extreme joy and a kind of relief of course. Paying off the home loan that too early is one of the best moments of life. You feel burden-free as you don’t have to pay anymore instalments now. This provides a feeling of relaxation to get some extra cash now onwards every month. In addition to this you have a home to call it – ‘your own home’! Once a home loan has been repaid in full, the ownership transfers to the borrower from the lender. All these excitement are justified, but apart from this you need to keep a couple of things in your mind which are necessary to know and should be taken care of before you close your Home Loan.
Things to be Kept in Mind Before Pre-closing Your Home Loan
- Collect all the Original Documents
At the time of signing agreement with a bank for a home loan we submit many documents, such as- mother deed and money deed, possession letter, power of attorney and some posted dated checks as well. At the time you decide to close your home loan either permanently or even in case of home loan transfer you need to collect all these documents from your lender. If you forget to collect even one document it can trouble you when you want to sell your property or even while transferring it on others name.
- No Objection Certificate (NOC)
NOC is one of the most important document which you should take from your lender when you close or pre-close your home loan. A NOC is a no objection letter which implies that bank has given a clearance to you property as a debt free property and now you have a full authority on the property. After a NOC the bank has no relation with that property. But when you take the NOC check for the details in the letter carefully like- owner’s name, property description and the date of change of ownership as well.
- CIBIL Score
CIBIL is one of the thing where your financial credits, borrowings and their repayments can be seen in the form of numeric. A good CIBIL is the must to have thing in order to get a loan. It decides your credit worthiness. It can happen that you CIBIL didn’t get updated for some time. This can happen due to your lenders laziness. In this case it’s your duty to make sure that your CIBIL gets updated on time after pre-closing your loan. Ask with your lender that they have sent your loan’s repayment history to the credit authorities of India, if not make they do this fast.
- Make an Estimate for the Final Settlement
It is important to know about the final settlement terms and condition if you want to pre-close your home loan. You should be aware about how much you have to pay and regarding what. It is also a fact that now a day’s most of the lenders have no pre-closure charges, but this too have certain terms and condition.
- Get a Home Loan Statement
Once you pay the closer amount it is important to have a Home Loan Statement of your home loan. It is important as it denotes all your repayments along with the dates and amount.
- Encumbrance Certificate
An encumbrance certificate is prove that the property being referred to is free from any financial and lawful liabilities. It is prove that the property can be sold as a free title and the possession will come to you with no related things.
You will get this document from the registrar’s office.
It is your confirmation that the property you are going to put resources into is clear of any legitimate duty and has an attractive title.
- Get Legal Clearance
Though this is optional, it is advisable to get a legal clearance certificate from a lawyer. In this way, you can be sure that all necessary formalities are completed from a legal standpoint. Also in case of any issues, a lawyer is the best person to make any decision on the same.
Pre-closing your home loan is always a good idea it makes you debt free and gives you a mental peace, but don’t be in so hurry that you skip any of the above mentioned point. This will affect you a lot in future. So, be a bit patent and take care of the above mentioned points while pre-closing your home loan.
What is the Process to Pre-Close a Home Loan in India?
The whole process of pre-closure of home loan can be put into 7 simple steps. If the loan is pre-closed through these steps, the processing will be easy and fast.
- Firstly make a list of all the documents that should be received back from the bank in order to complete the process.
- Then obtain the no objection certificate, this is commonly known as NOC from the bank. This certificate is a clearance certificate from the bank stating you have cleared all the outstanding payments related to the home loan and there is no objection to transfer the ownership. Through this the bank confirms that it has no more interest on the property.
- The third step is to remove lien on property from the registrar office, in case of no lien is created, then it’s not an issue at all.
- Fourth step is to get the CIBIL score updated. The score will shoot up if the loan is repaid without any default.
- Fifth is to get a certificate for legal clearance from a lawyer.
- Then make sure you have a copy of the detailed tracking of loan repayment. This can either be taken through online bank website or directly from the bank officials.
- Finally get a new Encumbrance certificate from Registrar.
Is it a Good Idea to Use Personal Savings to Prepay a Home Loan?
Is there an option to get excess fund, then it’s time to check if the home loan is actually life a sword in your life. If the monthly EMI amount is huge, then without any doubt pre-close the loan amount. However, on the other hand if the EMI is a very minimal amount, then it’s fine to retain the home loan to avail tax benefits and make use of the surplus fund for other investments. Also if you interest amount is more than INR 200,000 per annum, there will be no tax exemption, thus it’s wise to pre-close the home loan amount as early as possible. Another available option will be to prepay the loan to the extent such that the annual interest will be less than INR 200,000, this was your EMI amount will drop, the interest will be tax free and you will have sufficient surplus of fund for any other type of small investment. On the whole it is advisable to pre-close the loan as early as possible as there is lot of changes in a span of 10-15 years. In case of any emergency situations, it is good to not have huge EMI commitments. Thus consider job security, health issues and any such serious aspects before making any decision.