MOD Charges for a Home Loan

Applying for a home loan empowers people to arrange the necessary funds to finance their purchase of a house. However, since it is a long-term and high-value financial commitment, proper knowledge about the overall costs is essential. This knowledge usually includes awareness regarding interest rates, processing fees, and so on. One such charge is the MOD charges. This blog highlights all the crucial details about MOD charges for home loans. Read on to learn about these charges in detail.

What is MOD?

A Memorandum of Deposit or MOD is an important financial document that a financial institution issues to borrowers who apply for a home loan. Both the lender and the borrower have to sign the MOD as an undertaking to complete the loan application process.

The MOD is an essential document in the home loan process. It acts as a final statement indicating that the borrower has received the loan amount from the lender. Additionally, it acknowledges that the property is kept as collateral against the loan taken.

After the two parties complete the signing, the MOD is submitted to the local registrar to convert it into an equitable mortgage deed. It implies that the ownership of the mortgaged property is temporarily transferred to the lender unless the entire amount is paid off.

What are MOD Charges in Home Loans?

MOD charges refer to the additional amount that you need to pay aside from the processing fee. Usually, it ranges between 0.1% and 0.5% of the total loan amount. Upon breaking down these charges, borrowers get to understand the multifaceted structure of the processing charges and associated costs.

The charges encompass various costs such as administrative expenses, documentation fees, the cost of creation and maintenance of MOD, and the fees for legal aspects of registering and releasing MOD. A potential borrower must have a complete understanding of these charges to calculate the total costs of the loan and avoid encountering unnecessary expenses.

The Reserve Bank of India has mandated the lenders to ensure complete disclosure of the MOD charges to the borrower applying for a home loan. This helps borrowers to understand their financial implications and make informed decisions. So, lenders must comply with these laws set by the RBI to govern the MOD charges.

Memorandum of Deposit charges vary considerably among lenders, affecting the overall costs of the loan. Also, some lenders allow the borrowers to negotiate the MOD charges. Applicants should note that fluctuation in the interest rates also influences these additional costs. Hence, they should be aware of the present market condition when applying for a loan.

How MOD Works When Applying for a Home Loan?

A Memorandum of Deposits functions in the following manner in the case of a home loan:

Undertaking the deposits: Once a borrower receives approval for their loan amount, they will have to deposit the property title deed to the lender. This commitment is formalised by signing the MOD.
Calculation of MOD charges: After signing of MOD, the total charges are calculated which range between 0.1% and 0.5% of the home loan amount.
Assurance of repossession: The MOD serves as a legal document assuring borrowers that they can repossess the property mortgaged upon repaying the entire loan amount.

Upon having a clear understanding of how MOD functions, borrowers can proceed with the strategies to manage MOD charges.

What are the Strategies for Borrowers to Manage MOD Charges?

Following are some effective strategies that borrowers can use when applying for a home loan:

Planning repayment strategically: One needs to plan their loan repayments strategically so they can efficiently manage MOD charges.
Communicating with lenders: A borrower needs to communicate with lenders if they feel that the charges are too high and want to negotiate them.
Knowing the role of MOD in loan closure: Individuals need to have a thorough idea of MOD charges so that they can navigate them when closing their loans.
Exploring refinancing options: Borrowers can even mitigate these charges upon considering the refinancing of their credit.

Additionally, a borrower must also understand the significance of MOD charges to strategically navigate through it.

What is the Significance of MOD?

During the home loan process, MOD plays a crucial role. Their significance is highlighted as follows:

Offers a structured framework to the lenders for efficiently managing the lending process.
Highlights that the lenders are the rightful owners of the property mortgaged unless and until the borrower repays the loan.
Shields the borrower from the lenders by assuring them the ownership of the property if the borrower defaults on loan repayment.
It clearly states the details of the property and that the borrower has secured a loan against it.
This document contains details about encumbrance certificates and other essential papers.
Once the borrower repays the entire loan amount, the lenders cancel MOD, transferring the ownership of the property back to the borrower.
It empowers lenders to auction the mortgaged property to recover the loan amount in case the borrower defaults.
MOD protects the rights of borrowers on the property unless and until they pay off the loan amount along with the due interest.

After loan repayment, the MOD is cancelled by the creditor or the debtor, implying that the property rights have been transferred back to the borrower.

How Can MOD Charges for a Home Loan Be Cancelled?

Once a borrower repays the loan amount, they can request the lender to cancel the MOD and set their property free. They can follow the steps below to accomplish the same online:

Step 1: Contact your lender

First and foremost, reach out to your lender, and state to them the reason for cancellation of MOD. For this, you can connect with them via email or over the call or even visit their office in person.

Step 2: Submit a request for cancellation

State the reason for wanting to opt for a Memorandum of Deposit cancellation. Also, fill out the necessary form and submit the required documents outlining the reason for MOD cancellation.

Step 3: Enter all the necessary details

Make sure that the details that you are entering in the form are accurate. Some home loan-related information that you will have to provide in the form includes the loan account number, reason for cancellation, and so on.

Step 4: Submit a written communication

Some lenders will ask you to submit a written communication for the cancellation of your home loan. Make sure that you comply with the same. Once your request is processed, the lender will also confirm the cancellation of MOD in writing.

Step 5: Keep checking account status

The lender can also confirm the MOD cancellation through your account statement. So, monitor the transactions of your loan amount regularly to ensure that there are no unexpected deductions.

People can also go for cancellation of MOD offline if they are not comfortable with the online process. The steps are as follows:

Step 1: Collect the NOC from your lender to cancel MOD. Make sure that it contains all the necessary details.

Step 2: Ask your lender to share a deed receipt as applicable.

Step 3: Schedule a visit to the office of your registrar and request them to remove the lien on your property.

There are several benefits that a borrower as well as a lender can get due to the involvement of a Memorandum of Deposit in a home loan.

What are the Advantages of MOD for a Home Loan?

The Memorandum of Deposit is associated with numerous advantages for a lender and a borrower. These include:

Minimises costs: The MOD charges including the stamp duty fees and other costs amount to 0.1% of the loan amount. This is much less when compared to the interest rates and charges associated with the registered mortgages.
Simplifies procedure: Once the loan is fully paid, the lender themselves transfers the title deed of the property to the borrower. This saves the borrower’s hassles of visiting the lender again and again for property transfers.
Offers legal protection: The borrowers can take legal action in case the lender changes the loan terms or does not adhere to the terms mentioned. Even, lenders can take legal steps if the borrowers do not pay the EMIs on time.
Prevents frauds: The MOD contains all the details of the property and outlines the terms and conditions of the home loan as well as the details of lenders and borrowers. Thus, both the creditor and the debtor stay protected from fraud.

Once you are thoroughly aware of MOD and the charges associated with them, you can proceed with the home loan application process.

Home Loan Application Process

One can follow the steps below to apply for a home loan from a reputed lender:

Step 1: First and foremost, research and compare to finalise a reputed lender.

Step 2: Next, visit their official website and check if you meet the eligibility criteria.

Step 3: Upon meeting the criteria, move to the home loan application form.

Step 4: Fill out the form by entering the relevant details accurately.

Step 5: Upload the documents as mentioned in the application form.

Step 6: Cross-check the information and submit the application form.

Upon doing so, you the representatives will verify the application form details and the submitted documents. If they find that all the details are authentic, they can easily submit the application form.

Conclusion

Once you are aware of the MOD charges for home loans along with other details, you can properly plan your mortgage. Additionally, you can optimise the loan amount and repayment tenure to minimise the interest on your home loan. Even you can negotiate the interest rate on the credit to save substantially on the overall costs of your home loan.

FAQs

Do you need MOD when transferring the home loan?

Yes, when going for home loan balance transfers, you will need to pay MOD charges and issue a Memorandum of Deposit. This is so because the transfer of a home loan requires you to close a loan account with the current lender and open a new loan account with the new lender. Also, every new loan account requires you to pay MOD charges.

Can you pay the MOD charges later on?

No, you will have to mandatorily pay the MOD charges upfront, even before the financial institution sends you the loan agreement. It assures lenders of the possession of the mortgaged property, unless and until the borrowers repay the entire loan amount.

Can you refund the MOD charges already paid?

No, unfortunately, once paid, you cannot refund the MOD charges. Unlike other charges associated with the home loan, MOD charges are non-refundable and one-time expenses. You cannot negotiate with the lender or fill out any form to claim a refund for the amount that you have already paid as MOD charges.

How can you register for MOD when applying for a home loan?

Usually, there is a legal expert who will draft the MOD as per the available guidelines of the company. The Sub-Registrar of Assurances or other relevant authorities registers this document and establishes the charges necessary to treat the property as collateral during a home loan. The lender approves the loan only after a borrower signs the contract.

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