While an outstanding loan against property (LAP) calls for monthly EMIs,
a person receiving a lump sum amount can choose to foreclosure the loan and
become debt-free.
This topic is often under debate, as some people don’t like to be under
debt, even if they have a credible loan
against property eligibility. They want to remain debt-free as they
believe debt causes financial stress. On the other hand, some people don’t go
for foreclosure thinking they will lose out the benefits of loan, like tax
deductions.
Read more to get the right information to make an informed decision with
regards to your LAP loan.
What are foreclosure charges?
When you repay your LAP loan wholly or partially before the loan tenure
comes to an end, it is referred to as foreclosure. Banks and other lending
institution used to charge borrowers for foreclosing a loan. Currently,
foreclosure charges are not applicable on home loans, and loans against
properties taken on floating rate of interest.
How does foreclosure work?
Here’s the complete procedure of how foreclosure works:
Submit the Application
First, submit an application to the bank stating that you want to
foreclose your loan. Discuss with the customer care executive to know the loan against property documents required for submission along with your foreclosure
application. Also, make sure you are addressing the application to the correct
person.
Follow the procedures
Once you have submitted your application, follow up to know the process
and procedures. Though the requirement from your end would be minimum, you
still have to follow the process correctly to foreclose the loan.
Payment:
Once your foreclosure application is approved, your customer care
executive will let you know the amount due along with the foreclosure charges.
You have to pay the amount to the bank via online transfer (NEFT/RTGS) or
cheque. The total payment includes the outstanding loan amount. You are
required to pay foreclosure charges if your loan has a fixed rate of interest
and the charges may vary between 2% to 5%.
No dues certificate
Once you have paid all dues necessary, the bank will issue you a No Dues
Certificate. After generating the receipt, the lender will complete all
foreclosure formalities.
Receipt of documents
Once the loan is complete and closed, the lender is required to return
all your loan against property documents. The transfer of the papers may take
10-15 days to complete. It is necessary to follow-up with the bank for the
papers, in case there is a delay.
Importance of Following the Foreclosure Procedure
Following the above processes, when foreclosing the loan against
property is important to ensure that:
- the
lender cannot ask you to pay any outstanding dues in the future
- you
get all your original papers with regards to property ownership back into
your possession
As a borrower, consider the tax benefits before option for foreclosing a
loan. As mentioned above, you have the option of prepaying a part of the loan
instead of the whole amount.
