Foreclosing your home loan can be a prudent decision if you possess the financial means to clear the outstanding amount. It allows borrowers to settle their home loans ahead of the scheduled tenure, providing benefits like reduced interest payments and increased monthly cash flow. However, there are several important factors to consider before proceeding with home loan foreclosure.
Know Your Interest Rate
Understand the type of interest rate on your home loan. Floating interest rate home loans usually do not incur foreclosure fees, while fixed-rate loans may attract a 4-5% foreclosure charge. Fortunately, many home loans today come with floating interest rates, reducing the likelihood of foreclosure fees.
Inform Your Lender
While not mandatory, it is advisable to inform your bank about your decision to foreclose your home loan at least a week or two in advance. Providing written notice or sending an email can prevent last-minute issues due to human errors.
Obtain NOC and Encumbrance Certificate
Request a non-objection certificate (NOC) from your lender after foreclosure. It serves as insurance against future claims by the bank. Additionally, obtain an Encumbrance Certificate (EC) that confirms your property’s lack of financial or legal liabilities, which can be crucial when selling it later.
Remove Lien
Ensure any lien on your property, which could hinder its sale, is removed during the foreclosure process. This might take a couple of weeks but secures your right to sell your property without legal complications after debt clearance.
Retrieve Original Documents and Cheques
As you complete the foreclosure, make sure all documents, including post-dated cheques and property-related papers submitted during the loan application, are returned to you by the bank. This precautionary step can help prevent future conflicts.
While home loan foreclosure can boost your credit score and financial standing, it’s essential to assess your current financial situation and investments to ensure it doesn’t strain your finances unnecessarily. In the final stages of your loan tenure, calculate the minimal interest savings, as foreclosure may not always be the most economical choice. In such cases, continuing repayments and investing your available funds for potential higher returns may be a wiser approach.
