Home loan is a liability that comes with the joy of creating a lifetime asset for yourself. You wait years to save money and utilize it for purchasing a house of your dreams. A home loan supports you in fulfilling this dream. However, every individual who takes a home loan always wants to get rid of it as soon as possible, depending on their finances, to own their house fully in their name – a debt-free own house with absolute ownership.
To make this possible, the Reserve Bank of India has allowed borrowers to make any number of prepayments during the life cycle of the loan without any prepayment charges to help Indians close their loans as soon as possible. There are some who continue their loan for the complete tenor availed by them and let the loan close in its natural course. In either of the scenarios, pre-closure or natural closure, you need to take care of a few critical aspects to have hassle-free ownership and future ease of transfer.
This due diligence should start immediately after clearing of your last instalment or making the last payment for foreclosure of the loan. After ensuring clearance of the last loan payment, you need to inform your lender that you want to complete the formalities of closure. Get an appointment to visit your lender and take the below checklist to ensure you don’t miss on any aspect of closure formalities.
Home Loan is a liability and settlement of every liability has a proof. This proof is called loan closure proof or a no-objection certificate or no dues certificate. This document is issued by the financial entity or the bank that lends you money on its letterhead stating that your loan is now closed and there is no liability on this loan against your name. Please ensure that this document contains the below information:
Once the lender has issued the certificate to you, their right to charge monthly instalments (EMIs) from you ceases. They do not have any right to your property as well.
When you availed disbursement of the loan, it may have been secured against your property for which you may have handed over original property papers to the financial institution for their safe custody. Against this, the lender would have provided a list of documents (LOD) to you. Take this LOD along with you while visiting the lender for completing closure formalities and match the physical documents with this list.
If you are not able to locate your LOD or you never took the LOD from the lender, you need not worry. The lender will share the LOD with you at the time of returning the documents and every physical document would be matched with it. They will get you to sign an acknowledgement document on one set of LOD as a proof of handing over all documents to you.
Be very careful while checking the documents and ensure your property chain is as submitted by you and no document is missing in the link. Some of the documents that you need to check include:
Ensure the papers are intact and in good condition, the way they were submitted by you to the lender. Some lenders might club loan closure proof and LOD as a single document and take an acknowledgment on it.
While you got the loan disbursed, the lender must have taken some undated security cheques from you in addition to ECS/ACH for regular repayment. These cheques are used by the lender in case of any default by the borrower on monthly payments. In case you have never defaulted in your repayment tenor, your cheques would be intact with the lender. Don’t forget to collect these cheques and destroy them to avoid any future misuse.
Your entire history of loan starting from disbursement to closure is captured with the four different credit bureaus in the country. Ensure the same is updated by the lender within 30 days of loan closure.
Check your all four reports – CIBIL, CRIF, Experian and Equifax after 30-45 days of closure of your loan. In case the records are not updated, you can raise a request with the bureaus and they will connect with the lender to update the reports. Follow up till you get confirmation from the bureau on resolution.
Encumbrance Certificate is a legal document containing detailed records of all your financial transactions related to the property mortgaged for home loan. This can be retrieved from the local sub-registrar office.
When you close the loan, this certificate must reflect the full repayment. Procuring this document is proof that the property is free from any legal or monetary liabilities and is handy when you wish to sell the property anytime in future. This document is an important document in some parts of the country while in some other parts it’s not a critical document.
Normally, a home loan is categorized as an equitable mortgage in which no lien marking is done at the sub-registrar office. However, there are situations when the lender would be creating a registered mortgage on the property. This might happen when the lender is unsure about the repayment capacity of the borrower or there seems to be some abnormality in the legal transaction of the property. Lien marking gives an edge of recovery to the lender in case of default.
If a registered mortgage/lien marking is done on the property, you must ensure getting the same cleared from the sub-registrar office as soon as you repay the loan. Non removal of the charge would create complications for you in the future with regard to property ownership. The charge was removed and the release deed executed at the sub-registrar office. For this an authorized official from your financial Institution will accompany you to the registrar office.
Obtain a track of repayment from the lender and ensure your all bulk payments are also reflected in it. Try to keep a photocopy of the bank statements from where the repayment is done. This might be handy in case of any dispute with the lender or any government department or the credit bureau.
It’s not a bad idea to get a legal clearance certificate from a lawyer of repute. Though not mandatory but can be helpful in future while selling the house.