The duration of a loan, especially a mortgage, tends to be so long that one tends to forget details about what went into the process of procuring the loan. This, sometimes, leads to carelessness in ensuring that the loan is correctly closed.
Every Thursday, I guide people facing issues with delinquent service across a range of consumer, banking, insurance and credit issues. I have noticed that certain queries come up repeatedly—the fortunate ones, seek guidance before a problem occurs; the rest on how to deal with it. One recurring query is about closing home loans. So, here are some tips and precautions to take while closing a mortgage—many of them apply to other loans as well.
1) Return of Original Documents: Ensure that you get back all the original documents submitted to the lender. Clause ‘p’ of Section 126.96.36.199 of the Code of Bank’s Commitments to the Customers (The Code) issued by the Banking Codes and Standards Board of India (BCSBI) says that the bank undertakes to return all securities, documents and title deeds to mortgaged property, within 15 working days of repayment of all the dues as per the agreement or contract. Clause ‘q’ says that you are entitled to compensation for delays beyond 15 working days and clause ‘r’ promises compensation in case of lost or misplaced documents. Since all loan documents are centrally stored, it takes a few days for the bank to retrieve them; they need to be collected physically, with due acknowledgement.
2) Lifting Charges: In all home loans, the lender has a charge (mortgage) on the property against which you borrow. You must ensure that this charge is lifted by the borrower and your property is freed in writing, on repaying the loan. Remember, if you have obtained other credit facilities from the bank against the charge on your property, the lender will not part with the documents until all dues are paid.
3) Loan Account Statement: Obtain a properly authenticated statement of your entire loan account which should show the closing balance as ZERO. Remember, you are entitled to this under Clause ‘n’ of Section 188.8.131.52 of the BCSBI Code and the bank undertakes to provide an annual statement of loan account.
4) No Dues Letter: This is very important. Please obtain a ‘No Dues Certificate’ from the bank, when you close out your loan accounts. This will ensure that your credit record remains clear and ensures a smooth process in any future borrowing.
5) Check Credit Report/Record: Get a copy of your credit score about a month after all your closing documents and original papers are with you. Make sure that your credit report correctly reflects the closing of your loan. India has four credit bureaus, viz., TransUnion CIBIL, Experian, CRIF Highmark and Equifax. Checking with any one of them is fine. If your loan record is not correctly reflected, it is very important for you to take up the matter and have it resolved immediately. If you have not paid your loan and full interest, but entered into a ‘settlement’ or compromise with the lender, this will be reflected on your credit record as a default and affect your future borrowing ability. RBI circular no. DBR.CID.BC.No.11/20.16.042/2016-17, dated 1 September 2016, directs all credit information bureaus to make available one free full credit report to the borrower in each calendar year.
6) Property Insurance: Most banks insist on insurance of the property against which a loan is obtained. This is ‘general insurance’ and the policy is assigned in favour of the bank. Get the policy reassigned in your favour.
You are then free either to discontinue or renew the policy on its due date, or switch to an insurance company offering better terms. It is in your best interest to secure your property with an insurance whether or not you have a loan outstanding.
7) Collateral Security: If you have provided a life insurance policy or any other security in the form of fixed deposit, or National Savings Certificate to the bank as ‘collateral security’, please ensure the assignment, or lien, as the case may be, on that certificate is lifted when you close your loan.
8) Show Gratefulness: If you have had guarantors or sureties for your loan, make sure you send them a thank you note, ideal with the final loan statement closing out your liability and their responsibility.
(Abhay Datar is a former banker turned consumer activist; he provides free guidance on consumer issues, banking and insurance at Moneylife Foundation’s daily clinic.)