Home loans are almost always long term loans that are payable over a longer period. It is highly possible that over a period of time, you have the resources to pay off the loan. Of course, even if you have the resources it is a good idea not to pre-pay as you get some benefits, especially tax benefits on principal and interest amount paid on home loans.
Following is the procedure to pre-pay a home loan or pre-close a home loan in India.
1) Inform the lender
If you so desire to close the home loan, inform the lender of your desire to do so. Do give a tentative date to the housing finance company or the bank and ask them to work on the details of the outstanding amount of loan including the interest payable.
2) Make the payment
Cross check the amount that the lender has worked out. Make sure you clarify with the lender on any charges including the pre-payment charges in case it is applicable. Once you are satisfied go ahead and make the payment.
3) Handover of documents
The lender will now hand over the documents to you. Make sure all the documents, especially the original is in order. This would be done only after the cheque or payment is cleared.
4) No objection certificate
The bank will now issue a no objection certificate to you, mentioning that the outstanding has been cleared.This is a very important piece of document.
5) In case a lien has been created
In case a lien has been created you may have to visit the office of the registrar accompanied by an employee of the housing finance company or the bank as the case maybe.
6) Encumberance Certificate
After a month apply for an encumberance certificate which will show that loan has been paid and the property is free from any hurdles and is in your name.
7) Make sure you check your CIBIL score
Make sure that you check and coordinate with CIBIL authorities on the loan. One is not sure if an early pre-payment would affect your CIBIL score.
When taking a loan it is a good idea to ask the lender if there would be any pre-payment charges. In case there is a charge, you may have to factor the same accordingly. Also, make sure when you surrender your original documents you ask the lender for a list of all the documents.
When you have prepaid your loan, make sure that the list of documents are in order as you received at the time of taking the loan.