It's always a great joy to close your home loan early. The eagerness is even more, since every month you would have done away with that equated monthly installment (EMI).
In fact, the RBI recently stipulated that banks should not place foreclosure charges or pre-payment penalties on all floating rate term loans. This is for individual borrowers and is already applicable currently.
This has encouraged borrowers to pay back their home loans even earlier, though interest rates on home loans have remained steady and have not gone up really.
There are a few things you should remember and do before closing a home loan account early.
1) Make sure the original documents are in your hand
When disbursing a home loan almost all of the original documents, particularly the important ones are with the lender.
These include the most important documents such as the title deed, contract, indemnity and guarantors letter.
Along with there maybe a few other original documents that are submitted. Make sure that all of these are collected in original.
If the bank says that they will deliver them to your residence, tell them not to bother. Once you have honoured your payment obligation they have no business to hold your papers, even for an hour.
2) Final figure may be slightly more than you anticipated
The bank will charge a slightly higher amount then you anticipated. This is on account of the interest charges that will be applicable for the final settlement cheque which might day a few days to clear.
The final amount will always be greater than you anticipated.
3) Take a closure certificate
The bank will give you a closure certificate or No Objection Certificate. This will certify that all of the bank's or housing finance companies dues on the homes loans have been cleared.
4) Security cheques
One of the requirements before sanctioning an home loan by banks is to ask for security cheques. In most cases these cheques would either be 2-3. Once you have paid-back your loan, please make sure that you take back the cheques.
5) Final settlement calculation
It's always a good idea to sit with the concerned officer when he calculates the final settlement amount. See that there are no unwanted charges.
These days there is no pre-payment charges on home loans, which is a good thing.
6) Seek Advise
Seek advise from experts before you close your home loan account. There are some disadvantages of closing your home loan early including the tax benefits that you get on home loans.
Once you pre-pay the home loan the tax benefit will be gone.
In any case work on the pros and cons before you decide to close the home loan. Be a little proactive. Remember, the bank has got back their money and they will not care.
You are the one who has to be chasing them. Talk to people who have already closed their home loans. This might help in ensuring that you have the right kind of documents in the end.