When it comes to home loans, understanding every term and option available can help you make more informed financial decisions. One such term you might come across is "MOD" or “Memorandum of Deposit”. If you're curious about what exactly MOD is and how it can impact your home loan, you're in the right place.
What is MOD in a Home Loan?
In home loans, MOD stands for Memorandum of Deposit. It is a legal document signed by both the lender and the borrower. This document is typically finalised after the last loan instalment is disbursed. The MOD ensures that the financial institution lending the loan has a claim over the property until the loan is fully repaid.
How Does MOD Work in Home Loans?
The Memorandum of Deposit (MOD) formalises the loan agreement between the borrower and the lender. Let’s understand how it works:
- Undertaking Deposit: Upon loan approval, the borrower deposits the property title deeds with the lender. This formalises the borrower’s commitment to repay the loan and initiates the creation of the Memorandum of Deposit (MOD).
- Execution of MOD: After the final loan instalment is disbursed, the MOD is executed. It assures that the lender has a legal claim over the property until the full home loan amount is repaid.
- Signatures and Notarisation: Both the borrower and lender sign the MOD document, and it is notarised to ensure its legal validity.
The MOD acts as security for the financial institution lending the money as it specifies the borrower's obligation to repay the loan. If the borrower forgets payments or defaults on the loan, the financial institution can take possession of the property to recover the outstanding amount. Once the loan is cleared, the MOD is cancelled, and the property title is returned to the borrower.
Benefits of MOD in Home Loans
- Security for Lender: MOD provides collateral to the lender and secures the repayment against the property. The lending financial institution holds the property title until the entire loan amount has been paid.
- Clarity for Borrower: The MOD clarifies the borrower's obligations, protecting their interests while ensuring the lender's security.
- Legal Protection: The MOD is a legally binding document that offers protection to both the lender and the borrower. It prevents potential disputes by clearly stating the terms of the loan and the consequences of non-repayment.
- No Need for Additional Collateral: Since the property title is held as security, borrowers may not need to provide additional collateral for the loan, making the process less complicated and quicker.
- Loan Repayment Flexibility: In case of unforeseen financial difficulties, the MOD ensures that the lender has a legal process to follow in case the borrower defaults while still offering a chance for the borrower to clear the loan within the agreed terms.
Things to Know About MOD Before Opting for a Home Loan
Here are the key points to know about MOD (Memorandum of Deposit) in home loans –
- MOD Charges for a Home Loan: While the lending institution prepares the MOD, the borrower is responsible for paying the charges. Borrowers are responsible for MOD charges, which typically range from 0.1% to 0.5% of the loan amount, depending on state regulations and lender policies.For instance, in Tamil Nadu, the stamp duty is 0.5% of the loan amount, capped at ₹30,000, with an additional registration fee of 1%, capped at ₹6,000.
- Calculation of MOD Charges: MOD charges for a home loan are typically computed as a percentage of the home loan amount. This percentage may differ depending on the lending institution, but it cannot exceed ₹25,000, irrespective of the loan you are borrowing.
- Non-Refundable Charges: Unlike other fees in the home loan process, MOD charges are a one-time, non-refundable expense.
- Mandatory Requirement: MOD is a mandatory legal requirement in India for taking a home loan. It ensures the lender can repossess the property if the borrower defaults.
- Legal Protection: Provides a legal framework for both the lender and borrower, outlining property ownership rights until the loan is fully repaid.
- Cancellation: To cancel your MOD, first obtain a No Objection Certificate (NOC) from the financial institution after clearing all outstanding dues, then request a deed receipt from your lender, and finally, visit the Sub-Registrar’s office to have the lien removed.
- Impact on Default: In case of default, the lender can auction the property to recover the dues, ensuring minimal loss.
- Negotiability: Some lenders may allow negotiation of MOD charges for a home loan. It's worth discussing the terms before signing the agreement.
Understanding these aspects of MOD in home loans will help you make informed financial decisions and ensure a smoother loan process.
Wrapping Up
MOD in home loans secures the lender's interest, ensuring the property is held as collateral until the loan is repaid. While MOD charges for a home loan can range from 0.1% to 0.5%, they are non-refundable. Ensure you understand the charges before choosing this option. For more information, contact PNB Housing Finance today.
FAQs
How does the MOD period work?
The MOD period begins after the final loan instalment. The borrower deposits the property title with the lender, ensuring the property remains as collateral until the loan is fully repaid.
What happens after the MOD period ends?
Once the loan is repaid, the MOD is cancelled. The lender releases the property title to the borrower, and the lien on the property is lifted, signifying the loan's completion.
Who is eligible for the MOD period in a home loan?
Any borrower taking a home loan with property as collateral is eligible for the MOD period, since it applies once the final loan instalment is disbursed and the title is submitted to the lender.
How long does the MOD period last?
The MOD period lasts until the borrower repays the entire loan amount. Its duration depends on the loan term, typically spanning several years until the debt is fully settled.
