Finally paying off the debt for your home and owning it free and clear is the aim of all home loan borrowers. So you have come to the end of your home loan tenure or you have gathered sufficient funds to be able to pre-pay your home loan, and you are all set to live a debt free aka home loan free life. However, now you find out that while taking a home loan was a difficult process, closing the home loan is somewhat dreary too.
Depending on whether the home loan is being closed at the end of its tenure or whether you are pre-paying there may be a number of different steps involved. Let us take a look at some of those steps.
Application for home loan closure
Be it an end of term closure or a prepayment closure, most banks or NBFCs will require you to fill an application requesting for the closure, with simple reasons listed for the same.
Collection of your Documents
At the time of taking on the home loan, you will have submitted a number of documents to the bank or NBFC. These could include the Home Agreement, Stamp Duty Papers, Title Deeds, Deed of Sale, Conveyance papers, Power of Attorney, Payment receipts, Certificate of completion, Possession letters, etc, or any other document related to the house or property that was handed over to the bank or NBFC as collateral for the loan. Ensure that you have received all documents back and in good condition before you sign the bank’s letter confirming receipt of documents.
Lien Removal and No Objection Certificate
A lien was placed on your property by the bank or NBFC at the time of taking the home loan. This lien ensured that you were not able to sell the property to another party or to take a double loan on the property without the knowledge of the main bank or NBFC. This lien is to be removed at the closure of the loan by a bank official. An NOC or No Objection Certificate is also issued by the lending bank or NBFC to the borrower to confirm that they have no issues pending with regards to the property. This No Objection Certificate issued by the bank or NBFC is proof that you have paid the loan in full, and that the loan is closed in accordance with the terms of the lending bank or NBFC, and that the property is debt free.
Updation of Credit Scores
In India, credit scores are recorded by credit rating bureaus such as CIBIL, Experian India, Equifax India, and CRIF HighMark. On the basis of your loan or credit repayment history, you are ranked as a high risk or low risk individual or as a defaulter, if necessary. Hence, at the closure of your loan it is imperative to ensure that your bank or lending institution updates these bureaus of the closure of your loan. Although the process may take up to a month, this will increase your credit rating and also prevent any future financial difficulties caused by faulty credit scores.
Collection of left over cheques
While taking the loan you may have signed and handed over to the bank a series of cheques that the bank could use as security in the event that payments on the loan were missed or defaulted on. Ensure that once the loan is closed, the bank or NBFC hands over the remainder of the cheques to you or that the cheques are destroyed in your presence.
Collection of Loan Statements
After closure of the loan, the bank will issue you a number or statements and certificates for your records. The loan account statement will contain the history of payments made towards principal and interest during the entire tenure of your loan. The bank will also issue you statements of principal and interest paid that will help you in filing your income tax returns correctly.
For financial security, it is not just important to complete payment of and close your home loan. It is also necessary to ensure that all your property documents are in order and that there are no loose ends at either your side or the bank’s that may cause harm in the future. Go over each step of the procedure carefully to ensure that your home loan is closed correctly.