Loan zone: Closing your home loan? Ensure these tasks are done
Q. I am closing my house loan by paying the full amount in advance, what are the documents that I should take back in addition to my conveyance deed/Registration deed? mahavir gupta, zirakpur
A.In case of a foreclosure of a home loan, it is important to take two documents in order to avoid any problem in future.
If you have a home loan and now it is ending or you are closing it by paying the full amount in advance then first of all you should take an NOC from the bank. This is a document which shows that you have paid the loan in full and now you do not have to pay anything to the bank. So do not forget to take NOC. Remember to check the information given in it carefully. Check that the date of loan closure, your full name, bank account details, loan details and complete property details are correct. If this is not the case, then contact the bank and get the correct NOC made.
After closing the loan, you have to get an encumbrance certificate from the registrar’s office. Actually, this is a document which shows that there is no liability on your property. It is also important to have this document with you as you would need it while selling the property in future.
Impact of rate change
Q.What is the impact of changes in home loan interest rate on a current loan? pramod kumar, mohali
A.Home loan interest rates are beyond borrower’s control. When you are considering a home loan a change in the rate of interest (ROI) on a loan can impact the loan’s tenure, EMI, or both, depending on the customer’s repayment capacity.
Interest rates on home loans are often linked with the Reserve Bank of India’s repo rate. Banks often raise the interest rates on all of their loans, including house loans, in response to changes in the repo rate.
If the benchmark rate (REPO) changes, the interest rate on the home and home related loan account will likewise change. Any rise in the Repo Rate will result in an increase in the interest rate on the home linked loan.
The RBI, in its bi-monthly policy initiative, decides to change the interest rate up or down, which affects the home loan interest rate charged by the lender on your home loan as well. When interest rates go down, you save money because you pay a lower amount of interest while repaying the loan. However, when interest rates go up, you end up paying more. Lenders usually allow you to maintain your EMI and reduce or increase your tenure based on your needs. In other words, if the interest rate drops, you don't have to do anything because you’ll benefit from the lower rate. However, when the interest rate on your home loan increases, your dilemma begins. In this case, the cost increases for you because you will have to pay more interest than you would have if the interest remained the same.
If RBI increases interest rates, lenders have to ensure the EMI continues to cover the monthly interest on the loan and the loan outstanding does not increase from the previous month’s level after EMI is paid.
Also, loan sanction letters will have to disclose the charges for switching a loan from floating to a fixed rate at a future date.
Here’s how a change in ROI can impact a loan:
Interest rate increases: When the interest rate increases, the EMI amount also increases proportionally. This can put a strain on the borrower's monthly budget. Interest rate decreases: When the interest rate decreases, the EMI amount also decreases.
Loan tenure: The borrower can choose to change the loan's tenure instead of the EMI. For example, if the borrower chooses to change the tenure, the EMI remains the same but the tenure increases. Home loan borrowers are most impacted by rising interest rates because home loans have the longest tenures and are often the largest loan an individual will take.
