*****All you need to know about Home Loan Foreclosure | The Financial Express

Clipped from: https://www.financialexpress.com/money/all-you-need-to-know-about-home-loan-foreclosure/2953443/

If you are planning to go for a home loan foreclosure, here is a quick guide that can help.

All you need to know about Home Loan ForeclosureHome loan borrowers heading for foreclosure need a no-objection certificate. Your lender will issue this certificate which will be like insurance for you that you can use in case there are any future claims of non-repayment from the bank.

Home loan foreclosure is an option to close your loan much before its original tenure. It is a process through which one can repay the balance loan in a lump sum in the middle of the repayment period and settle the loan.

The foreclosure can be beneficial in two ways – Saving on Interest Payments and Adequate availability of monthly cash in hand. If you are planning to go for a home loan foreclosure, here is a quick guide that can help.

No Foreclosure Fees

As per the RBI’s circulars, banks can’t charge any foreclosure fees to borrowers for home loans with a floating interest rate. That means if you are servicing a home loan with no fixed interest rate, you are not liable to pay any fees or penalties. However, the banks may charge you 4%-5% of the outstanding loan amount as foreclosure fees if you have a fixed interest rate. Typically, most home loans are floating nowadays, and thus you are likely to pay no fees for premature loan closing.

Adhil Shetty, CEO, Bankbazaar.com, says, “Before you close your loan, you must make sure that you have calculated how much you will be saving. It is advisable to close your loan in the early years as towards the end, when you are just paying the principal, it will not be too beneficial to foreclose your home loan. Also, you should have sufficient funds for repayment. At the time of foreclosure, collect original property papers and ask the lender to issue an NOC to avoid any dispute later.”

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Pre-inform the Bank

Though not mandatory, it is advisable to keep your bank informed formally, at least a week or a fortnight in advance, about your decision to foreclose your home loan. Either you can write an offline application explaining the same or send a mail to the branch’s official email ID. This way, you may spare yourself from last-minute issues.

Keep your Documents Ready 

Your bank may ask you for the original documents and other repayment-related papers. Thus, it is recommended that you keep all your originals in order which can help you pace up the loan closure process. Documents like the Original Loan Agreement and the EMI receipts would be sufficient, apart from your usual ID proofs like PAN Cards.

Avail NOC and Encumbrance Certificate

Home loan borrowers heading for foreclosure need a no-objection certificate. Your lender will issue this certificate which will be like insurance for you that you can use in case there are any future claims of non-repayment from the bank. It is an essential document that a home loan borrower should avail of. Further, once the foreclosure process is over, ask for the Encumbrance Certificate (EC), which states all the financial transactions related to your property. EC affirms that your property (house) has no monetary or legal liabilities. It is an essential document which comes in handy, primarily when you sell your house in future.

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Lien Removal

A lien is a right to keep possession of property belonging to another person until a debt owed by that person is discharged. Essentially, a lien prevents you from selling the house. At the time of foreclosure of a home loan, if there is a lien on your property, you should get it terminated as you have cleared all the debt owed to the lender. A bit lengthier process stretching up to a fortnight, removal of lien ensures you have the right to sell your house in future without any legal hassles.

Get all your original documents and post-dated cheques, if any

Since it is a final settlement of your home loan by way of foreclosure, you need to ensure all documents are retrieved well from the bank. For instance, all post-dated cheques in possession of the bank, property documents which were submitted at the time of loan application, and any other originals should be duly collected back by the home loan borrower to avoid any conflicts later.

Home loan foreclosure is prudent only if you have adequate funding to settle the outstanding amount. It certainly adds brownie points to your credit score, and your creditworthiness rises considerably. If you are forcing this upon you by unsettling your current finances and investments, you may eschew the foreclosure and continue the repayment until you have enough. Else, it may be detrimental to your financial health. Moreover, if you are in the final years of the home loan tenure, it is better to calculate how much savings you would make on interest.

Typically, if you have a year or two left, savings is minimal on interest, and thus foreclosure may not be a viable and economical option. Instead, you may continue the repayment process and use the available funds for investments to get better returns.

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