Taking a home loan and repaying a home loan, both is tiring and time-consuming task. However, both gives you unlimited happiness and satisfaction of buying a home and finally owning a home on your name. Foreclosure of your home loan is always a welcomed and wise decision if you have enough funds. It is always suggested to foreclose a loan or make partial payments if you have some extra money to support. It gives you freedom from monthly EMIs and at the same time a mental satisfaction of completion of your loan.
However, foreclosure gives you more happiness and relief as compared to gaining tax benefits from your home loan. You should start thinking about foreclosure of your home loan after 5 or 6 years of taking the loan. As most of us take a loan for minimum 10 years to maximum 30 years. So pushing yourself a bit and taking that giant step for foreclosure can give you relief and bandwidth to spend/invest your money on other important things as well. Even your minimum EMI must be eating a share of your overall monthly budget and savings. Therefore, when you are in your late 40s you should start thinking of foreclosing your loan, so that you can save more for your child's education,for their marriage or for your retirement. Closing your home loan on tenure or before tenure is dream of many and comes with lots of excitement, but in this moment of joy and excitement don't forget to complete all paper work and procedure for error free transfer of documents. Otherwise, this excitement and joy will turn into bitterness with one small mistake. Here are some important things to keep in mind before foreclosure or closing your loan on time:
Some neccessary steps to follow
Collect your original documents: Once you visit your lender to pre-close your home loan you should always collect your all original documents from the bank. You should always ask for all property documents, agreement deeds, loan documents and other important documents.
Collect your security cheques: When the bank disbursed you the loan, it must have taken some security cheques from your end in case you default on your EMI payments. Always ensure that you take these cheques back from bank once you close your loan with bank to avoid any misuse.
Check all documents carefully: While foreclosing or closing the loan always ensure that you receive all original documents from bank. Mostly, banks safeguard the documents at a centralised place. Therefore, always ensure that no documents is misplaced while dispatch. Before signing the documents for closure deed, always read all documents carefully and check there is no typo error in name, address, place, account details and other important things.
Update your CIBIL database: Many times, banks/finance companies forget to inform CIBIL when a home loan is pre-closed. Therefore, always ensure that you get a CIBIL certificate from your bank. It will take 20-30 days to update the information in the database, but you should always ensure that your information gets updated in the database. Once the bank inform you about update of information, get an updated CIBIL report to make sure that your information is reflecting.
Take NOC from Lender: NOC is a NO Objection Certificate, which will clearly mention that the bank/finance company does not hold any interest in your property and is cleared from the bank after removing all hypothecation.
While receiving this letter ensure that all names, address, lender's name, bank account details and other important informations are not misspelled. Also, check that it has clearly mention that the borrower has paid all the dues and the property/home is now debt free. Ensure that the property is entirely yours and debt free.
Take away the lien at the registrar office: In many cases, the lender register your property in the lien at registrar's office. This means that the lender will keep the right to sell the property themselves, if the borrower is not able to pay back the loan. Nowadays, banks don't put a lien on property, because they anyways check the background of the customer's property and keep original documents in their custody. Therefore, while collecting all the documents, you also check that lien is removed from your property. If you don't remove the lien from your property, you will face issues at the time of selling the house in future.
Get detailed payment document: It is recommended that you keep a track of your bank statement which indicates your loan EMIs. If you have made any partial payments and any prepayment for pre-closure of the loan ask for a photocopy of receipt and keep a scanned/photocopy copy of your cheques/demand draft as well for your data.
Tax benefits: You can gain the tax benefits on the amount you paid under the interest as well under the principal amount as mentioned in the Income Tax Act to the upper limit. You can gain the tax benefits IT Under Section 80C of maximum Rs. 1.5 lakhs per annum.
Should one pre-close the home loan: There are plenty of benefits in pre-closing or early closing the loan. If you have surplus money to pre-close your home loan this is a very wise idea. It will help you in saving more on the interest amount you paid against the loan and at the same time it will help you in getting debt free before time. You should always think to pre-close the home loan after completion of six to seven years of home to save more on interest part.
List of documents one should collect: At the time of closure or pre-closure of the home loan always ensure that you don't forget to collect all original documents from bank such as :
- Sale Deed
- Power of Attorney
- Payment Receipt
- Conveyance Deed
- Builder-Buyer Agreement
- Possession Letter
- Transfer Permission, etc.