What is the process to pre-close a home loan in India?

Pre-closing home loan means paying off your home loan before the loan tenure.

For example:

Loan tenure is 25 years

After paying EMI for 10 years, your outstanding loan amount is Rs. 15 lakhs. You pay off the outstanding loan of Rs.15 lakh in one shot to lender.

Thus your loan is pre-closed before the loan tenure of 25 years. Now you are debt-free and you can reclaim your property documents from lender.

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We pre-close home loan for various reasons, few reasons are:

• Refinance
• Save money on interest
• Change of lender (because another lender offers lower rate of interest)
• Loan default

We recently pre-closed the home loan to avoid the loan default, below is our situation:

My client Mr. Raj took a home loan of Rs. 36 lakhs from SBI to purchase a 2BHK flat in Bangalore. He bought the flat for his self-possession (living with his family)

After a few years, Mr.Raj moved to Australia. He rented his flat in Bangalore, but the rental income from the flat was much less than the EMI he pays to SBI. He defaulted more than six EMIs because of his poor financial situation. The SBI marked his account as non-performing asset (NPA)

To mitigate this financial damage, we negotiated the interest rate with the bank, but we were not successful in the negotiation. Further, we decided to sell the flat and pre-close the loan

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We followed the below procedure to pre-close the home loan:

We listed the property on the market and found the buyer within 3 months. The selling price is Rs. 51 lakh although the government’s guidance value is Rs.70 lakh.

The buyer lives in Delhi and is self-financing the purchase (not opting for home loan)

Mr. Raj logged into his SBI Internet banking and checked the outstanding loan amount. We shared screenshot below for your reference

We asked the buyer for a down payment equal to the outstanding loan amount of Rs.29,58,972, since our main goal is to rotate the cost from the buyer and pre-close the home loan as soon as possible

Our selling price is substantially less than the guidance value, which is the proportionate value in this deal. So, my buyer accepted 60% as down payment for loan closure, although most buyers would not accept down payment more than 20% of buying price.

The buyer made Rs. 29,58,972 DD payable to Mr. Raj. Refer to the below DD image

Mr. Raj took home loan from “RPC Layout” branch in Bangalore. We decided to close the loan at same branch

The closing of home loan does not require the borrower’s presence in the branch. In our instance, Mr. Raj was not present in the branch for the closure of the home loan

The buyer from Delhi arrived at the RPC layout branch in Bangalore with DD, we explained to the bank staff that we wanted to pre-close Mr. Raj’s home loan and showed the DD to bank staff.

The bank staff instructed us to write the deposit slit, we wrote the deposit slip favoring Mr. Raj and his loan account number. We handed over below deposit slit and DD to bank staff. Refer to the below Deposit slit

The bank staff closed our home loan in 15 minutes and gave us the loan closure letter. Refer to the below image

Mr.Raj in Australia received an email from SBI as soon as we received the loan closure letter mentioned above. The email consists of an appointment to collect property documents from RACPC. The appointment date is 08–08–2024. Please see the email screenshot below

We closed this loan on 24–07–2024; the appointment date is 08–08–2024. It indicates that the bank will deliver the property documents within15 days from the day of loan closure

The buyer believed that as soon as the loan closed, the bank would deliver the property documents to him, The buyer had intended to keep the property documents as collateral for Rs. 29,58,972 down payment he had given for the loan closure.

Please be aware that the bank does not give property documents to the person who closes the loan, In our case, the buyer closed the loan and bank did not give the property documents to him. The property documents are only given to borrower or his/her power of attorney. Additionally, the property documents are issued at RACPC after 15 days rather than instantly in the branch. In our case, the bank will handover the property documents only to Mr. Raj or his Power of Attorney

We asked the bank staff to expedite the appointment date because the buyer did not have the patience to wait for 15 days after paying a substantial amount for loan closure. The bank staff changed the date to 30–07–2024 at our request. It indicates that the bank changed the appointment day from 15 days to 6 days. In the closure letter, the bank staff wrote the updated date to 30–07–2024. We highlighted the updated date in below image

The bank staff had another copy of loan closure letter, he updated the new date on that copy as well. I think, the bank staff will send that copy for RACPC reference

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If you look at the DD above, the buyer made it in Delhi on 05–07–2024. The buyer sent us the DD image over WhatsApp the same day.

Mr.Raj in Australia began working on the two General Power of Attorney (GPA) as soon as he saw the DD image on the same day.

Two GPAs: One for collecting documents from bank and another for registering Sale Deed. We thought of pooling one GPA for document collection and Sale Deed registration. SBI has its own GPA format for document collection and we followed the SBI format to avoid unnecessary objections while collecting property documents in RACPC. Accordingly, we execute two distinct GPAs for document collection and Sale Deed registration.

Mr. Raj wishes to give GPAs to his brother in India. Mr. Raj executed the GPAs in Australia and couriered them to his brother In India. The brother signed the GPA and adjudicated it in District Registrar's office in Bangalore. The adjudication fee is Rs. 500

Refer to below bank GPA

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Mr.Raj from Australia sent an email to RACPC on the day of the appointment using his registered email address, stating that his brother will collect the property documents on his behalf

The brother took the following documents and approached the RACPC Malleswaram for document collection

• Printout copy of email that Mr. Raj sent to RACPC
• GPA
• Brother’s ID proof

After verifying the above documents, the bank staff handed over all the property documents to brother. Additionally, the bank staff handed over the Discharge Deed to remove home loan lien in sub-registrar office.

We registered the Discharge Deed in KR Puram Sub-registrar office in Bangalore, refer to the below-registered Discharge Deed

We simultaneously registered the Sale Deed in the same sub-registrar office as the Discharge Deed mentioned above. Refer to the below Sale Deed

The buyer gave the final transaction cheque to brother. The cheque favors Mr. Raj

The brother handed over all the property documents including parent Deed and delivered the possession to the buyer

This completes the process of pre-closing our home loan

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We provide assistance to pre-close home loan. Please WhatsApp to +91-97424-79020

Thank you for reading…