17 OCTOBER, 2022

Buying the house of your dreams might be exciting. However, you must pay close attention to detail during the entire process, from selecting your house to squaring off the final EMI. While seeking a home loan, borrowers are required to present plenty of documents. Before entering the home loan process, it is critical to understand what these documents signify. One such document among the pile is MOD.

This article explains what MOD is in a home loan, MOD in registration, how it works and why it is important. 

What is MOD?

A Memorandum of Deposits is known as the MOD. It may also be referred to as the memorandum deed or mortgage deed. MOD charges are usually a part of the additional or hidden charges in your home loan processing fee. While taking a home loan, you are mandated by the lender to deposit your property documents. The MOD denotes an undertaking by the borrower stating that the seller has deposited the property deeds with the lender.

What does this document do? And how is it essential in a home loan process?

A MOD is like a safety net for the lending institution. The agreement, signed by both the lender and the borrower, signifies that the lender has the right to share the property until the loan repayment process is complete. Lending institutions use the document to manage losses if the borrower defaults on the home loan. The MOD is typically signed during the outflow of funds from the lender to the property seller. The lender usually draws it.

Who pays the MOD-related charges?

While the lending institution draws the MOD, the borrower must pay the charges. MOD charges can range from 0.1-0.5% of the total loan amount. However, the upper limit of MOD is set at Rs. 25,000, irrespective of the loan amount. 

Why is MOD essential in a home loan process? And how does it impact borrowers?

Usually, substantial principal amounts are involved in a home loan process. Borrowers seek the help of lending institutions to grant them the desired funds at the set loan terms, including an interest rate and a well-defined repayment tenure. However, lending institutions face credit risk as borrowers may default on such large amounts. It could lead to deep losses for lending institutions. To cover themselves from such losses, the lender uses MOD as a pledge that they can seize the property in case the borrower defaults. It helps lending institutions manage their operations more efficiently and saves them from losses. If the borrower defaults on the loan, the MOD allows the lending institution to auction off the property and recover the dues. As a result, almost all the banks have made MOD a mandatory document during the loan disbursal process. The document also helps the lending institution identify cases wherein borrowers seek multiple mortgages on the same property.

Borrowers must conduct proper planning before applying for a home loan. Home loan EMI calculators are specifically designed to compute monthly installments and safeguard loan applicants from any risks of default that may result in losing their property. A careful assessment of future expenses would help borrowers manage their finances more efficiently. Before applying for a home loan, borrowers must plan their finances to see if they can accommodate the interest payments as a part of their expenses. In addition, the borrowers should also be aware of the details of the MOD loan.

How is MOD Cancelled?

As the borrower repays the installment on the home loan, it is the responsibility of the lender to cancel the MOD and set the property free to the borrower. The lending institution sends its representatives to the registration office to draw a release deed. The registration department is notified to release the MOD and clear it from encumbrances. However, there may be cases wherein borrowers are required to cancel the MOD. It is recommended that upon loan repayment while collecting the documents from the bank, you must not take MOD. Instead, it would be best if you asked the lending institution to generate a deed receipt executed by the lender in favor of the borrower. However, if your lender still asks you to cancel your MOD, you may follow the below steps:

  • Firstly, you need a NOC from the bank to cancel your MOD. The NOC must contain all the essential information. Note that you are eligible to withdraw the MOD only after you have cleared all the outstanding dues on your home loan with your lending institution.
  • Secondly, request a deed receipt from your lender.
  • Finally, visit the Sub-Registrar’s office and ask for the lien to be removed.

You may also cancel the MOD online. To make a cancellation online, you must visit the website and click on “Deed of Receipt” and link to the original MOD. You will be required to fill in a few details and make a payment of less than Rs.200. You can make the payment online through net banking. After you have made the payment, you must initiate a token, i.e., schedule an appointment. On the day of the appointment, the registrar’s deputy will conduct a preliminary review and tag the document as reviewed. After that, the document will go to the registrar, who will review the bank representative’s credentials before approval. Next, a fingerprint scan and photograph of the borrower will be collected, and payment verification will be done. You may have to pay any additional charges. Finally, a biometric copy and a copy of the payment receipt and the Deed of Receipt get submitted.

Conclusion

MOD is a critical document required in the home loan process. The document safeguards lending institutions from suffering losses. Borrowers are aware of the MOD registration and cancellation process. Additionally, borrowers must be cautious while applying for home loans and apply only for the amounts they can repay easily.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.