How To Close Your Home Loan Properly And Avoid Future Hassles

When people decide to take out a home loan, they typically invest a lot of time considering the best option for their needs. However, this same level of thoughtfulness is often missing at the time of closing the loan.

A home loan is a big and long financial commitment, and you should make sure that you are closing your loan properly and in a well-documented manner. Many home loan borrowers heave a sigh of relief once they pay off their last EMI. Whether you decide to prepay your loan or finish the full term, it’s essential to adhere to the necessary procedures.

There are two ways to close your housing loan: either you may decide to pay off your loan prematurely, or your loan may naturally reach its tenure end.

If you are planning to close out your home loan prematurely, follow the step-wise process outlined below:

Step 1: Write a letter to your bank or non-banking financial company (NBFC) and request about the outstanding amount as on a fixed date.

Step 2: The bank will then calculate your dues till the fixed date, depending on your loan repayment cycle. The bank may charge you a prepayment penalty or prepayment fee if your home loan is on a fixed rate of interest, however they should not ask you for a fee if it is a floating rate home loan.

Step 3: You need to give the bank a 15 to 20-day window for calculating your dues for closing out your loan prematurely.

Step 4: Prepay the loan amount due on or before the stipulated date and confirm the repayment with your bank. You can choose to prepay the amount either as cash or through a cheque. Most people prefer paying off their dues through a cheque as it gives them a documented proof of loan prepayment.

Step 5: Take back post-dated cheques (PDCs) you may have issued to the bank after submission of your dues.

Step 6: The bank will issue a loan closure letter or NDC (No Due Certificate) stating that all dues have been repaid and there is no outstanding amount in your name.

Step 7: Take back your original documents from the bank after you obtain the NDC.

Step 8: Get your home loan lien removed, if any.

If your loan has naturally reached the end of its tenure, here’s what you need to do:

Step 1: When you reach the end of your loan tenure, you will need to write a letter to your bank informing them about the end of your loan.

Step 2: The bank will double check your loan repayment and then issue you a No Due Certificate (NDC) mentioning clearly that all the dues for your loan have been repaid.

Step 3: Make sure to double check the NDC document for any mismatch in the name of the borrower, the property in question, the address, and loan account number.

Step 4: Once the bank provides you with a No Dues Certificate (NDC), ask them to return all the property-related documents you submitted. Typically, the bank will provide you with a List of Documents (LOD) that you submitted when you took out the home loan. Make sure to verify this list against the documents you receive to ensure nothing is missing.

Documents that you need to collect from your bank usually include:

• Original Sale Deed of your property

• Prior Title Deeds

• Power of Attorney, if applicable

• Builder-buyer agreement

• Property cost break-up, if given

• Possession letter

• Payment receipts

• Any cancelled cheques

• Any tripartite agreement, if applicable

• Encumbrance Certificate

• Land and Building Tax Receipts 

Step 5: Check with your bank if they have put a lien on your property. If so, you will need to approach the local registrar in your city and get the lien removed. You will need to submit the bank NDC with the local registrar to get the lien removed against your property.

Step 6: Ask your bank to notify the credit bureaus about your loan closure. Typically, banks report loan closures to the credit bureaus once a month. They will let you know once they have sent the information to CIBIL and others, and you can verify your credit score to see if it has improved. An increase in your credit score indicates that the bank has communicated your loan closure to the credit bureaus.

Due diligence during a home loan closure is just as important as when opting for one. Even after a successful loan closure, ensure that all loan details, including bank statements, NDC, and prepayment records, are in place for future use.