Borrowers decide the loan amount to be specified in their Home Loan application based on the value of the property they plan to buy with the loan money. Most borrowers make the mistake of not considering the several fees and charges that come along with a Home Loan. MoD charges are one such charge that a borrower must mandatorily pay while availing of a Home Loan. What is MoD and what are MoD charges?
What is MoD in a Home Loan?
MoD refers to the Memorandum of Deposit and is a legal document that borrowers and lenders must sign before the lender disburses the loan money into the borrower’s account. The Memorandum of Deposit essentially states that the lender has full rights over a part of the property and will continue to have this right until the borrower has repaid the loan in full. In other words, the MoD is a safety net for lenders – in case the borrower fails to repay the loan, with the help of the rights provided to them by the MoD, the lender can sell the property for the recovery of the loan money. The MoD also states that the borrower has submitted the title deed of the property against which they have availed of the loan to the lender out of their free will.
So, who prepares the Memorandum of Deposit? The lender prepares this document and the lender, and the borrower must sign it either at the time of the property being registered or before the borrower receives the first instalment of the loan money.
Importance of MoD in a Home Loan
Over the recent past, cases of loan default have increased and therefore, it has become important for lenders to safeguard their interests. The Memorandum of Deposit essentially establishes that the loan has been availed of against a collateralized asset and therefore, in case of loan default, the lender can sell the collateralized asset for loan recovery. The MoD is therefore a very important document for the lender as well as the borrower. The borrower must invalidate the MoD as soon as they have cleared the loan in full.
Invalidating or cancelling an MoD is easy. Once the borrower has repaid the loan in full, they must write to the lender to cancel the Mod. The lender then prepares a release deed which it must submit to the registrar’s office. Once the registrar’s office receives the release deed, they invalidate the MoD. Doing so establishes the borrower as the sole owner of the property. Borrowers must check the release deed accurately for all the details. Make sure the document frees you of your obligations as a borrower and establishes you as the sole owner of the property.
Now that we know all the basic details about the Memorandum of Deposit, let us look at the Mod Charges for Home Loans.
What are MoD Charges
If you are planning to apply for a housing loan, you must familiarize yourself with all the charges involved. As mentioned before, the borrower must pay the MoD charges when the property is registered in their name or when they receive the first instalment of their loan. The MoD charges vary between .2%* to .5%* of the entire loan amount and must be borne by the borrower. However, the total MoD charges cannot exceed Rs.25,000, irrespective of how big the loan amount is.
Home Loan borrowers also always ask another question: is it mandatory to pay the MoD charges? Is there any way one can get out of paying this fee? The simple answer is yes – paying the MoD charges is compulsory and there is no way a borrower can get out of paying this fee. Yet another question that Home Loan applicants ask does one require an MoD when transferring their loan to another person or lender. Again, the answer is yes, it is impossible to transfer a Home Loan without an MoD.
*Terms and conditions apply.
Frequently Asked Questions
As per the latest regulations, payment of MOD is compulsory for a borrower and it is to be executed before the final loan amount can be paid at any financial institution. Memorandum of Deposit appears in all encumbrance certificates as it gives the lender the right to repossess the borrower’s property in case of defaults and recover their losses by auctioning it off.
As per the latest regulations, payment of MOD is compulsory for a borrower and it is to be executed before the final loan amount can be paid at any financial institution. Memorandum of Deposit appears in all encumbrance certificates as it gives the lender the right to repossess the borrower’s property in case of defaults and recover their losses by auctioning it off.
It is the borrower who is responsible for paying off the MOD charges associated with a home loan.
Disclaimer
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