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After the bank has ensured that the property is legally and technically clear, all the original documents pertaining to transfer of ownership of property in your favour have been submitted and all the necessary loan agreements have been executed, finally, it is payment time! You will now actually receive the cheque in your hand. Time to celebrate! But hold on a second. Before the big moment arrives, you need to submit documents to prove that you have paid your personal contribution towards the property, since banks normally finance only up to 80‐ 85 per cent of the total cost of the house. In case you are expecting money from other sources to fund your own contribution, you need to provide sufficient evidence for the same. It is only after submitting this proof that the bank will release part‐disbursement of the loan.
The cheque will be in the name of the reseller(for resale flats), builder, society or the development authority. It is only in exceptional circumstances, thatis, if you provide documents to support that you have made an excess payment from your own account that the cheque will be handed over to you directly by the bank.
- All banks charge interest on the loan amount from the day on which the cheque has been made and not from the day on which the cheque is handed over to you/seller. So, take delivery of the cheque the same day or the very next day to avoid paying extra interest on money.
DISBURSEMENT IN STAGES
Usually, loans are disbursed on the basis of the stage of construction of the property. So, in case of resale or ready possession properties, the disbursement is full and final. However, in case of under‐construction properties, the payment is made in parts, also known as part‐disbursement.
Each option would have different disbursement processes.
When a loan is partly disbursed, the bank does not start EMIs immediately, since it is calculated on the total loan amount at a particular rate of interest and for a given tenure. Moreover, it normally does not start breaking up the installments into its principal and interest components until the entire loan amount is disbursed.
To overcome this difficulty, banks charge simple interest on the partly disbursed loan amount. For instance, if you have a sanctioned loan of Rs10 lakh, but the property is under construction and the bank has disbursed only Rs4 lakh, you will be charged a simple interest only on the disbursed amount. This process continues until the final disbursement takes place. The simple interest paid is called Pre‐EMI interest or Pre‐EMI.
At this stage, banks may take only around three to six post‐dated cheques on account of Pre‐EMI.
- Always ensure that the amount of simple interest is available in your bank account to avoid dishonour of the cheque.
- The systems of most banks do not track Pre‐EMI payments as effectively as EMI payments. However, as per the loan agreement, your liability to pay Pre‐EMI is absolute and without receiving any reminder from the bank. You may have to pay a delayed payment charge if your Pre‐EMI is delayed. So, it is in your own interest to keep track of the number of PDCs given to the bank for Pre‐EMI and replenish them, should the need arise.
- Submit the demand letter from the builder as and when raised, to ensure that the balance disbursement can take place.
- Collect the receipt from the builder for the part‐disbursement and hand it over to the bank.
- Ensure all the above are complied with till the final disbursement of the loann.
FULL AND FINAL DISBURSEMENT
If it is a ready‐possession property, the bank disburses the entire loan amount in favour of either the reseller or the builder.
- Take time to fill in the loan documents before you sign them. Some columns may have to be kept blank as the exact amounts may not be known, but this should be limited.
- The bank is supposed to return a copy of the loan documents signed by its authorized signatory that rarely happens in practice without sustained follow‐up.
- Keep photocopies of all documents/agreements/letters submitted to the bank to avoid any misunderstandings later.
THE RELATIONSHIP CONTINUES…
The final disbursement does not end your relationship with the bank. In fact, it is just the beginning. And there are various issues/situations that arise in between the beginning of the relationship and its end.
- Post-disbursement documents
- Income tax certificate
- Loan preclosure/satisfaction
- Post‐disbursement documents
Once the bank hands over the pay order to you, you in turn are expected to hand it over to the reseller or the builder. You should get a receipt from them for the payment and hand it back to the bank, as it will become part of your mortgage documentation.
In case your property is part of a society, you will need to get the flat transferred to your name by asking the society to issue the share certificate in your name and recording the transfer of ownership in their books.
This normally happens at the first AGM/EGM after the sale transaction. This transferred share certificate also happens to be a part of the mortgage documentation and has, therefore, to be handed over to the bank after the transfer takes place.
The loan is generally repaid by equated monthly installments, using few initial cheques and hen through ECS (Electronic Clearing System) or direct debit.
In case your installments are to be deducted against your salary, you need a letter from your employer accepting this arrangement and directly remitting the amount to the bank every month. This is possible only if your organization has an arrangement with the bank for all employees.
INCOME TAX CERTIFICATE
Every bank or lender issues an income tax certificate that serves as requisite proof to let you avail of tax benefits that accrue on repayment of a home loan. This will typically contain the total amount of interest and capital repaid during the year.
This is mandatory to claim the tax benefit in respect of self‐occupied property. You will have to file this with your tax returns and submit this to your employer or chartered accountant to calculate your tax liability.
You can prepay a loan either in part or in full at any given point of time. You can also prepay it even when it is only partly disbursed.
Until recently, banks charged a penalty for part or full prepayment. But now with RBI directive they cannot.
You also have the option of completely repaying the loan at any time. Of course, each bank has its conditions for preclosure. Also, the loan will get completely paid off on the expiry of the tenure of the loan if you have paid all your installments on time.
On complete payment of the loan, ask bank for,
- Original property documents
- No-Objection Certificate / Letter from bank – property clear
- No liability letter for guarantors, if any
In some cases, you may discover that the original documents have yet not been received by the bank from the registrar. In such cases, you will need to follow up with the registrar and get the documents from them directly by showing them a copy of the bank’s clearance certificate.