How To Close A Home Loan?

Updated on March 7, 20194 mins read
Close A Home Loan

Taking a home loan is a long and tedious process, but so is closing it. This can be done either at the end of the loan tenure or before the specified tenure, if you have some extra funds at hand. To pre pay the loan, you must make sure you have excess funds to make the pre payment and for emergencies so that you are always financially secure. While submitting your documents to the bank, you must get an acknowledgment letter from the bank stating a list of documents being submitted. This is helpful while closing the loan, if a few documents get misplaced. Also, any change of address should be communicated to the bank so that all your documents are mailed to the correct address while loan closure.

How to close loan at end of tenure?

If the last EMI and all outstanding dues have been paid, then you need to write a letter to the bank requesting a return of the original documents. If you need any other documents such as invoice copies etc. include this in your letter. Generally, the bank responds to such letters within 7 working days. The bank will return your original documents and issue a closure letter stating that there is no outstanding amount. It will also give an NOC stating that it no longer has an interest in the property. If mortgage has been registered, then the no- objection certificate needs to be taken to the Registrar’s Office to get the lien removed. The borrower and a representative of the bank need to be present for this. However, if the mortgage is not registered, the bank will simply returns the title deeds.

How to Close a Home LoanHow to Prepay a loan?

To prepay the loan, write a letter to your bank inquiring about the outstanding amount and state a particular date by which you will pay the entire loan amount. If you decide to close your loan in the middle of you repayment cycle, you must find out the interest amount you need to pay. It is best to inform the bank 15 days before your next payment date.  If you have given post dated cheques, make sure the bank returns them along with other documents.

Prepayment fee

Since 2012, the Reserve Bank of India and National Housing Board have banned prepayment penalty on all floating interest rate home loans. However, you will have to pay a prepayment penalty if you have a fixed interest rate home loan. Regarding hybrid home loans, where the first few years the loan is on fixed interest rate and the remaining tenure is on floating interest rate, prepayment penalty will apply if you prepay your loan during the fixed rate tenure. But no prepayment penalty is levied if you have crossed the fixed rate tenure and are now paying a floating interest rate. However, if you have taken a top up loan on your home loan, you will have to pay a prepayment penalty, regardless of fixed/floating interest rate.

Here are a few points you MUST keep in mind while closing your loan: 

1. Collect Original Property Papers:

Ensure you collect all original papers submitted to bank as a collateral. Match them with the list of documents received from bank at the time of disbursal.

Typical papers submitted to the bank are :

  • Sale Deed
  • Conveyance deed
  • Builder Buyer Agreement
  • Power of Attorney
  • Payment Receipts
  • Possession Letter
  • Transfer Permission
  • Tri partite agreement etc.

2. Collect Security Cheques : 

When the bank disbursed your loan, it must have taken security cheques in case you defaulted on  your EMI payments. Make sure you take these cheques back, once the loan is closed and destroy them to prevent misuse.

3. Get No objection certificate from bank (NOC):

NOC is a legal document that serves as proof of full repayment and closure of loan according to terms of lender. It may also be useful in case you plan to sell off the property. Thus, it is important to get one from your bank.

4. Get Lien Removed:

Lien is the right to keep possession of property belonging to another person until the debt owed by that person is discharged.  If the lender delays in doing so, you can get it removed with the help of NOC issued by bank.

5. Update CIBIL (Credit Information Bureau of India Ltd.) Score:

Credit score is the report card of your finances. So once your home loan is closed, you must ensure that your bank updates this information at CIBIL. If not done, you may face problems in future financial transactions or loans.

6. Other Documents:

Lastly, don’t forget to collect other important documents from your bank like;

  • Complete loan account statement,
  • Principal and interest certificates (help filling your Income tax returns)

While closing a home loan brings in relief and financial stability, it is important to complete all related formalities and procedures with your bank to avoid any complications. Remember, your loan is not closed until your bank gives you a letter clearly stating it is. Just because you have paid your last EMI or full prepayment of outstanding amount, it does not imply loan closure.


Tarini

Tarini

Tarini comes with a degree in Mass Communication and Media studies. She joined SwitchME as a content writer and moved on to being an assistant product manager. Tarini is an experienced Content Strategist with a background in Product development and management. She is skilled in SEO, social media strategy and online content marketing and likes to travel when possible
6 COMMENTS

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  1. Akash garhwal
    Nov 18 2016 at 11:12 pm
    Reply

    R/sir
    actually my father took home loan from LIC
    and he passed away while loan was still pending but we paid the loan prepay and its been 5years we still didnt get the orginial documents that were given to them at start of loan. so can you pls help me out here??

    • Sumita Nath
      Sumita Nath
      Dec 01 2016 at 5:59 pm

      Hi Akaash,

      Kindly visit your bank to know the reason for not transferring your original documents. I hope before you started prepaying the amount, you had gone through all the formalities.

  2. Deepak
    Nov 08 2016 at 7:09 pm
    Reply

    I have a laon with LIC HFL for 3 years and I am making a pre-payment to pay it all. I am not in India, so I want to know if its possible to close it via proxy or providing my brother with power of attorney ? My LIc agent tells me I can send an email to him + original signed letter with my brother and it should be possible, but can I trust his words? Thanks for information.

    • Sumita Nath
      Sumita Nath
      Dec 01 2016 at 6:13 pm

      Hi Deepak,

      Apology for the late respone.

      If you have net banking facilities for this Home Loan Account you can do the pre-payment easily, if not you can provide power of attorney to your brother. It would be good to cross check with any of the officials of LICHFL regarding the process of pre-payment.

  3. amrik
    Jun 12 2016 at 4:32 am
    Reply

    R/sir mera SBI home loan 23/05/2016 ko sanction ho gya phir 26/05 2016 ko home loan ko pehli kisht milk…me puchhna chahta hu ki kya me home loan ko bina utilised kiye baapis or sakta hu? Jo pehli kisht muje mili h use bharkar me home loan close kr sakta hu?please reply…..

    • Tarini
      Tarini
      Jun 16 2016 at 1:50 pm

      Hey Amrik

      Sorry, but you will not be able to close the entire home loan by repaying the first installment disbursed to you. You will need to repay the entire home loan amount as and when its disbursed to you. That’s what the rules say, however, you can approach your bank and ask them to consider you as a special case. I hope it works out for you.