Closing the loan
Entire economy now a days is built on loans. This has also changed life style of people and unlike saving money earlier, people believe in bare minimum savings and spending rest of the money either on luxuries or in long term investments. One byproduct of such scenario is home loans. You will find many young people owning houses now a days. Where it all comes from Any guesses. . yes, you are right! Loans - Home loans to be more precise. But as a home loan is a big ticket loan, it
is for a long period also. And such a long period experiences many economical changes like interest rate fluctuations, charge rates fluctuations, tax law changes etc. In such a volatile economy, you can not afford to take a loan and just pay your installments. Then, what else can you do. ! You should evaluate your loan at every such instance of change which affects your loan burden. After evaluation, you should find better current option available, if any. Some examples are, selling property or closing the loan either your own funds or by taking another loan.
Reasons why people close loan:
People generally close their home loans when they can find the same loan at lower rate of interest. This happens only when there are continuous rate increases and their loan in with the floating rate of interest i. e. rate of interest which changes with the market conditions. Another reasons may be poor services and higher charges levied by current financer, cash availability to repay debt or changes in law. For example, say you have taken a loan in 2002 at the rate of 7. 25% p. a. but in increasing trend, the rate now is 11. 25%. Surprisingly, you will find that many financers are providing loans at 9. 75%! Whish one would you choose You will definitely close the current loan and go for a loan from another financer! Take another example where M/s A is known for heavy charges for each and every statement, do not provide documents on time after closure of loan, levy un-necessary charges and do not
provide sufficient explanation. On the other hand there are some other financers who are known for their good services. If you are a busy person and need door step services or faster services, you will choose to switch your loan to the later one.
What you have to pay and what they gain:
All the financers have their own terms and conditions regarding charges the customer has to pay at the time of closing the loan. While no documentation is required to close the loan, customers have to pay foreclosure charges ranging from 0% to 3% of the principal outstanding before closing the loan. While finances in un-organized sector do not carry any foreclosure charges, banks in private sector levy maximum charges. This is done to cover charges of processing request and document handling. Also with the purpose of minimum turnover of the customers who may switch from one financer to another and another, just in case if he is getting small benefits. You should evaluate your benefits after considering the charges that you have to pay today. Generally if you are gaining >0. 25% in interest, then only it is may prove either break even or profitable for you.
Process to be followed for same:
First you must check with your financer what is the amount payable if you want to close the loan today. The statement should provide separate amounts for principal outstanding, foreclosure charges, any other charges (like bounce charge or late payment charges). The statement should also mention the per day interest clearly. This is required to enable you to know what amount is to be reserved for payment of the loan on a particular day.
Also collect a copy of statement of your loan account and reconcile the same youre your bank entries. This is to ensure that you do not pay some amount again which you have already paid. It is in your interest that you carry your bank statement and resolve query there and then. Generally financers ask for bank statement showing clearance of last 2-3 installments.
Prepare your DD / Cheque accordingly and submit the same in lieu of receipt for payment against foreclosure of loan. Process for closure of loan is different in case of death of the person in whose name the loan was taken. Notice to financer, insurance, charges waiver, are some of the important aspects for that.
How soon you can expect the closure:
All the financers close your loan account within a time that is practical and convenient in respect of their facility of storage of documents of the customer (legal papers of ownership of the property). Small financers may be able to provide the documents on the spot (after realization of cheque in case of cheque payment). But reputed and big banks have central storage facility with a separate vendor(s), and it may take 7-15 days to provide your documents back to you.
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