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An individual opts for a home loan for their different purposes. These purposes could be either construction of the home, its renovation or purchase of home and property. Basically, there are certain terms and conditions to be followed while taking up a home loan. One among them is that a borrower needs to deposit a fixed amount on monthly basis.
A borrower can take up a secured home loan by keeping his house as collateral. In such a scenario, the lender is given the authority to sell off your home and claim the money if you become a defaulter.
1. Loan closure at the end of tenure: End of home loan tenure signifies that you have reached towards the end of paying EMIs. After the final payment of the last EMI, you need to write to your loan provider saying that the loan tenure has come to an end. You also need to request them to return your documents.
2. Loan Closure by Prepayment: The primary thing you must do when you wish to prepay your home loan is to check the amount left over with the bank. The bank needs the precise date and the borrower has to request the bank to calculate the outstanding dues till that date. Based on your repayment cycle, inform the bank to process the ascertainment of the outstanding loan amount. After prepayment of the loan, take back all the post-dated cheque’s that you have issued.
Broadly speaking there is a similar procedure for pre-closure for all banks. Given below are certain precautions to be taken during pre-closure of a loan
You need to write to the bank about the details of your home loan status. In particular, a check needs to be made pertaining to the payment of the latest instalment.
You have returned the original documents and the bank issues a letter of closure or an NOC which depicts that there is no outstanding amount yet to be paid by you.
Another NOC is issued by the bank stating the completion of the agreement between you and the bank.
Types of Home Loan Closures:
The concept of Loan Closure has been categorized into 4 different types. They are as follows
- Regular Closure
- Bad Loan Closure
- Settled Loans Closure
1. Pre-Closure: You need to ask for a future date pre-closure statement. After that, you should sign a check or DD for that particular amount and thus the closing of your loan will be done successfully.
2. Regular Closure: Closing a home loan after the completion of loan tenure is considered a regular closure. In such a case, a loan is closed in a regular manner without any complications.
3. Bad loan closure: It has been observed that bad loans are the least in home loan segment.
4. Settled Loans Closure: This segment of loan closure reflects the loans that have been settled. In such scenario, the borrower is tagged as settled and it gets recorded in the CIBIL Report. Eventually, the borrower has to get away with this tag for a better future of credit.
Given below are certain precautions that should be taken to remove the settled tag from the borrower’s name in the credit report.
- The borrower has to pay all the dues and close the loan in order to change the settled status on the credit report.
- The second step would be to reach and mention to completely pay all the dues and penalties if any and finally close the loan.
- After all, dues are cleared, the banks report the level on this loan to CIBIL as ‘closed’.
- In the last step, the CIBIL Report will depict the position on this account as ‘closed’. The most important thing to be kept in mind here is that CIBIL can only change to your report after the banks have updated the data.
Steps to close a home loan:
1. Document Collection: The original documents of the property are required to be submitted while applying for a loan. After paying off all the EMIs, you need to collect all the original documents acknowledged to the bank.
2. Receipt of NOC: NOC means No Objection Certificate. You need to acquire an NOC from the bank after clearing all dues. This certificate consists of entire details of the property against which the loan has been taken.
3. Removal of Property Lien: Sometimes the bank registers a deed with the registrar for a home loan if the borrower’s repayment capacity is doubtful. After the clearance of all dues by the borrower, it is very important to cease the lien. If the lien continues even after the closing of the loan, the borrower will not be allowed to sell his property.
4. CIBIL score needs to be updated: You need to request the bank to update the CIBIL score after you are done with closing the loan. This update makes it easy for the borrower to acquire loans in future if the CIBIL score is good.
5. Get a New Encumbrance Certificate (EC) from the registrar: After receiving an NOC and terminating the lien on the loan, it is essential to apply for an EC Certificate from the bank. This certificate explains about the financial transactions related to the property. This leads to the end of a home loan process.
6. Bank loan should be closed rather than getting settled: If your loan is settled with the bank, your CIBIL Score will get affected. So it is better to go for closing a loan instead of settling it.
Points to be noted:
1. Original Documents Required: Whenever you tend to close a home loan, the original documents should be kept by your side. The documents include Contract, letter of guarantor and insurance letter.
2. Amount to pay before closing: If a borrower opts to close a home loan, the banks asks him to pay an amount higher than the original amount.
3. Certificate of Closure: Certificate of Closure is nothing but another name for NOC (No Objection Certificate). This certificate is issued by the bank mentioning that there all dues have been cleared.
4. Assessment of Final Settlement: It is suggested that the borrower is physically present when the computation of Final Settlement is being done. A check on surplus as well as prepayment charges has to be made by the borrower.
5. Cross Verification Of Every Detail: Every minute detail in a home loan matters to a large extent. So it is advisable to go for a cross check all through the loan closure process.
Documents Required after Home Loan Closure:
The documentation from your side has been done. After that, it is the role of the lender that is pending regarding the documentation. If all dues have been paid and loan has come to a close, you should gather the following documents from the lender for sure.
1. In case there is a sudden demise of the loan account holder, the Original property documents in Power of Attorney format should be taken back carefully.
2. For handing over the Property Documents, a letter should be written requesting the legal heir or nominee.
3. For the surrendering of the property in favour of legal heirs or nominees, a letter of abdication relinquishment has to be written
Affect on Credit Report:
If a pre-closure is done to get a different loan, it is considered as a credit behavior it creates a negative impact on your credit history. So ideally it is advisable to opt for closing a loan if you want to free yourself from the burden of home loan liability.
Lastly, it can be concluded that a home loan can be closed either after the entire tenure is completed or by prepayment of the loan amount. Prior to taking a decision, the borrower should make a detailed comparison of compare home loans from different institutions. In doing this a borrower needs the help of credit advisory firms and make better as well as informed choices that will result in improving their credit score.
Home loan closure FAQ’s:
1. When should the bank be sent with a letter for closing a loan?
A letter should be sent to a bank mentioning the intention of closing the loan after the last EMI has been paid.
2. When do the banks respond to the letter of closing a loan?
Often banks respond in seven working days
3. What are the original documents to be collected while closing a home loan?
- Letter of Possession
- Sale Deed
- Receipt of Payment
- Conveyance Deed
- Builder Buyer Agreement
- Transfer Permission
4. What is the time span to collect all original documents from bank while closing a home loan?
All the documents should be collected within 10 days from the date of repayment of the loan.
5. What is the next step after the original documents are returned by the bank?
After returning the documents, banks issue a closure letter which states that there is no outstanding amount against the property.
6. What is an NOC?
NOC is the abbreviation for No Objection Certificate. It explains that the bank does not hold any interest in the property.
7. When is the NOC issued by the bank/lending institutions?
An NOC is issued by the bank/lending institutions after the payment of all dues namely Principal, interest.
8. When should the NOC be taken from Registrar’s Office?
If a mortgage has been registered, then an NOC should be taken from the registrar’s office to get the lien removed.
9. What particulars need a cross checking after receiving an NOC?
After receiving the NOC, all particulars like your name, address, lender’s name, and bank account details are not spelled incorrectly.
10. How to get your CIBIL score updated?
The CIBIL report is updated after you close your home loan. Usually, it gets done by making a ‘DATE CLOSED’ entry including the exact date of home loan closure.
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