Big-ticket loans such as home loans consume a major chunk of one’s total monthly income. Therefore, borrowers try their best to close their loan by availing of the home loan foreclosure facility. Since most home loans are sanctioned on floating interest rates and floating interest rate home loans do not attract a foreclosure penalty, foreclosing one’s loan makes a lot of sense, especially if one can afford to repay the entire amount due in one go.
If you are planning to opt for home loan foreclosure, you must develop familiarity with the concept of a home loan foreclosure letter and everything that goes into it. Read on to learn more about this important document that will start your foreclosure journey.
What is a Home Loan Foreclosure Document?
Once you decide to foreclose your loan, the first thing you must do is inform your lender of your intention of foreclosing your loan by either writing a letter to them or filling out the home loan foreclosure form. On receiving your letter or form, your lender will release the home loan foreclosure letter, which is a letter that elaborates important details, such as the total amount pending and that you will have to repay to foreclosure your loan, charges involved, penalties applicable, etc. The home loan foreclosure letter is important as it gives the home loan borrower a clear picture of the fees involved and allows home loan borrowers to decide if foreclosing their home loan would indeed be the right choice for them.
The next question is what does a home loan foreclosure letter contain? Here is what you will find in this letter:
- To start with, your home loan foreclosure letter will contain all relevant information related to your loan account, such as your loan account number, the date on which the loan was sanctioned, the total loan amount that was sanctioned, date of disbursal, original repayment tenor, etc.
- The home loan foreclosure letter will also contain all details related to the fees and charges you will have to pay in case you decide to foreclose your loan. If you are on floating interest rates, you won’t be asked to pay any foreclosure penalty. However, you may be asked to pay annual maintenance charges and EMI bounce charges, if applicable. If you are on fixed interest rates, your lender may apply a foreclosure penalty ranging up to 4% of the principal amount.
- The letter will also clearly mention the total outstanding amount that you will have to pay to foreclose your loan.
- Lastly, the home loan foreclosure letter will also elaborate on the terms and conditions of the foreclosure. One must go through these terms and conditions very carefully. If needed, they must hire a legal expert, to help them understand the various conditions put by their lender.
Once you receive the home loan foreclosure letter, go through it carefully and sign only if you agree with everything mentioned in the letter. If you disagree with something, you can always talk to your lender and try and reach a middle ground.
While we are on this topic, here is another thing that must be highlighted. Very often, borrowers use their emergency funds to foreclose their loans. This is a mistake one must never make. It is better to pay interest to your lender and foreclose your loan when you comfortably can than compromise your liquidity and ability to handle a financial crisis.
Further, after you foreclose your home loan, do not forget to take the home loan NOC letter from your lender. Home loans are essentially secured in nature. When a borrower borrows money by pledging a property as collateral, the lender places a lien on the property. The lien gives the lender the right to sell the pledged property for loan recovery in case of loan default.
Once a borrower has repaid the loan, the lender must remove the lien from the property and release a NOC that clearly states that the borrower has repaid the entire amount due and therefore, the lender has no stake in the property and that the property belongs entirely to the borrower.