How to Foreclose Your Loan Against Property

What is Loan Against Property Foreclosure?

Loan Against Property foreclosure refers to the complete repayment of the outstanding loan balance before the scheduled tenure. Many times, borrowers prefer to pay their remaining EMIs in a lump sum to close the loan, which helps to reduce their long-term financial burden by saving on interest payments and enhances borrower’s financial flexibility.

It is effective for individuals who come into surplus funds or wish to reduce their monthly liabilities for long term planning. You can always use Loan Against Property EMI calculator which will show you overall interest rates you are paying along with your principal amount.

Also Read: What is Loan Against Property? Features, Eligibility, Documents and more

Benefits of Foreclosing Your Loan Against Property

Substantial Interest Savings:

Loan Against Property foreclosure leads to considerable reductions in total interest on your loan. The earlier you foreclose, the higher chances of savings

Improved Credit Score:

When you repay your loan on time, it maintains a good credit score and enhances your eligibility for future credit facilities.

Reduced Financial Stress:

With foreclosure done, you do not have to worry and can plan your finances better in terms of savings, investments or essential expenses.

Enhanced Ownership Clarity:

Once foreclosed, the lender removes their lien on the property, and you can have legal and financial ownership of your property.

Better Financial Planning:

With no monthly liabilities, you can redirect funds towards other high-return avenues or emergency reserves.

Understanding Loan Against Property Foreclosure Charges

When borrowers prefer to foreclose their loan, the lender typically charges 2% to 5% fees. These charges act as compensation for lenders who would have otherwise earned during the outstanding loan tenure.

In addition, many lenders can also impose lock-in periods which would mean that you are restricted to foreclosing your loan for a time-period or attract steeper charges. However, Reserve Bank of India now discourages foreclosure or penalties on floating interest rate for non-business loans, which now indicates nil foreclosure charges, enhancing prepayment flexibility.

Loan Against Property Foreclosure Process in India: Step-by-Step Guide

For smooth Loan Against Property foreclosure, you can follow the process:

• Examine your loan agreement and locate if there are any Loan Against Property charges, penalties or lock-in period. Through your loan agreement, you might also find out about requirements to process the foreclosure.
• Request your lender to share the outstanding loan amount report, which also includes principal amount and unpaid interest, so you can accurately plan your finances.
• Since you will be paying the outstanding amount in one-go, make sure you have arranged your funds using your savings, investments etc.
• Communicate your preference with your lender formally in writing or through official portal, if available.
• Clear the outstanding loan amount as per your preferred payment method
• After the payment is made, request a NOC letter or loan closure letter for your record.
• Collect your original documents back from your lender and complete the formalities to remove the lien if the lender has placed it on the property.
• You can acquire non-encumbrance certificate from sub-registrar’s office, which can be helpful for future sale property or re-financing, not mandatory but recommended.
• After a month from foreclosure, verify with credit bureaus if your credit score is updated to maintain a good score record.

Also Read: How Your CIBIL Score Affects Loan Against Property Approval

Documents required for Loan Against Property Foreclosure

To ensure your Loan Against Property foreclosure is processed without challenges, one must make sure the proper documentation is provided. Following are some documents you might want to present when request for foreclosure:

• Original Loan Agreement and Foreclosure Statement with amount breakdowns
• Acknowledgement Letter or Payment Receipt which can serve as proof of full settlement of dues
• No Objection Certificate issued by the lender, confirming full payment and release of your property
• Original Property Documents such as title deed, sale deed and all mortgage related paper returned to you
• No Dues Certificate to remove any legal encumbrance or lien release document to remove lien from the property
• For KYC you would need your standard documents such as address proof or identification proof

Important Considerations Before Foreclosure

One must always proceed with Loan Against Property foreclosure after evaluating several factors that can affect their financial planning. While for some loans with floating interest rates, there are no charges, other types of loan can carry considerable penalties.

Liquidity and Emergency Cushion:

While paying a lump sum amount, do not deplete cash reserve or investments that you allocated for emergency purposes.

Penalty Vs Interest Savings:

While Loan Against Property with floating interest rate will not carry any penalties, other loans with fixed rates will. You must compare the penalty, which typically is 1-5%, with interest savings to assess net benefit.

Alternate Investments:

Evaluate if any alternative investment can be serve as an opportunity cost that will help you yield more interest savings from foreclosure.

Credit Score:

Early closure can affect your credit score. Usually, a longer loan tenure helps in building a strong credit score.

Tips to Save on Your Loan Against Property Foreclosure Charges

Everyone likes to save their capital anywhere they could. However, it can happen only with smart strategies.

• Always try to negotiate with your lender. If you have opted for floating interest rate and using Loan Against Property for business purposes, you can carry a copy of RBI guidelines which highlights about nil charges on foreclosure.
• Time your foreclosure post lock-in periods. Many lenders impose a lock-in period before foreclosure, for example of 6 months. Once that is passed it will eliminate or reduce the charges.
• Always compare the service offered by various lenders. It will help you choose lenders whose services align with your financial goals.
• Plan to pay the lump-sum amount strategically. Always ask the lender if there are any rewards on partial payment or lump sum amount such as reduction the principal amount without triggering any penalties.

Apply now for a Loan Against Property.

FAQs

Q.1. What is the difference between foreclosure and prepayment of Loan Against Property?

A. Prepayment of Loan Against Property means partial or full payment of loan amount before the scheduled tenure while foreclosure would mean paying the outstanding amount in one go before the end of the tenure.

Q.2. Are foreclosure charges applicable on Loan Against Property in India?

A. Yes, foreclosure charges are applicable on Loan Against Property in India. However, according to RBI, if you have opted for floating interest rates and using the loan for business purposes, you will not be charged for foreclosure.

Q.3. Can I foreclose my loan during lock-in period?

A. No, you cannot foreclose your loan during lock-in period.

Q.4. How long does it take Loan Against Property to foreclose?

A. The foreclosure of Loan Against Property varies with lenders and internal approvals. After foreclosure you need to arrange your documents or collect them from lenders, for which the timeline differs for every lender.

Q.5. Will the foreclosure affect my credit score?

A. Yes, foreclosure can affect your credit score. If it is a forced foreclosure due to delays in payment, it will impact negatively on your credit score while a voluntary foreclosure without missing any repayment will have a positive impact on your credit score.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any, please visit www.godrejcapital.com.