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.
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 post‐dated cheques. Banks usually ask for 12, 24 or 36 PDCs, after which you need to repeat the process until you have repaid the loan. Some banks may also insist on a cheque for an amount equivalent to the loan outstanding at the end of PDC period to ensure timely replenishment of PDCs for the next 12, 24 or 36 months as the case may be.
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 organisation has an arrangement with the bank for all employees.
Some banks allow you to give standing instructions to the bank where you have your savings/current account to deduct money each month crediting your home loan account.
Some banks allow the monthly installments to be paid by convenient ECS facility. Another possible mode of payment is by cash or demand draft(not all banks offer this). You can deposit the EMI every month at the bank’s office.
Income Tax certificate:
Every bank 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. However, most banks have an upper limit on the number of times a person can prepay his loan in a year as well as on the minimum amount you can prepay each time.
Until recently, banks charged a penalty for part or full prepayment. But increased competition has forced most banks to allow partial prepayment at nil charge.
Most banks levy a prepayment charge if you make full repayment and ask for release of your property documents.
You also have the option of completely repaying the loan at any time. Of course, each bank hasits 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.
Once you have completely repaid your loan, ensure that the entire set of original property documents is handed back to you.You should also ask the bank for a No‐Objection Certificate saying the account has been cleared. As an option, the bank may issue a consent letter stating that the property is now free from mortgage.
If you have guarantors, the bank will issue a separate letter for each of the guarantors stating that their liability has come to an end. Only after you receive these documents can you say that the property is now completely free of mortgage.
At this stage, 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.
Sometimes, (and we must stress only sometimes) the bank may misplace your original propertydocuments leading to avoidable stress. In fact, the bank may claim that these documents were never given to them at all. Hence the importance of insisting on a proper receipt of title documents while handing them over to the bank.
Remember that receipt will come in very useful when the loan is fully paid off. Also, it is extremely useful when you want to shift your loan to a new lender.