MOD in Home Loan: Meaning, Benefits, Charges and How It Works

If you apply for a home loan, the lender will require security against the amount being given to you. Since a home loan involves a substantial sum, the property being purchased generally acts as collateral for the loan. This means the lender also needs a legally recognised interest in the property until the loan is fully repaid. One of the documents associated with creating this security is the Memorandum of Deposit of Title Deeds. 

Understanding this term helps you know what happens to your property documents. In this detailed blog, we will look into what is MOD in home loan, why it is required and what charges you may have to pay.

What Is MOD in a Home Loan?

When you take a home loan, the lender needs assurance that the loan is secured against the property. Under a mortgage created through the deposit of title deeds, you will have to deposit the relevant original property documents with the lender as security for the loan. The MOD in home loan records this arrangement.

The document generally contains details relating to the borrower, lender, property and title documents deposited. It establishes a formal record of the mortgage arrangement and the lender's security interest in the property. This is why it is important to understand the MOD process for home loan.

How Does MOD Work in Home Loans?

The MOD process in home loan generally involves the following steps:

1. Undertaking Deposit

After the home loan is sanctioned, you will need to provide the required original property title documents to the lender as part of the mortgage process. The deposit of these documents establishes the security arrangement between the borrower and the lender.

2. Preparation and Execution of MOD

The lender prepares the applicable Memorandum of Deposit of Title Deeds and other mortgage-related documentation. The document records the essential details of the mortgage arrangement. You must execute the document and complete the applicable formalities.

3. Payment of Applicable Charges

You will have to pay the MOD charges and other applicable expenses. These charges vary depending on the state and your lender. There is no single MOD charge applicable to every home loan in India.

4. Registration or Recording

Where registration or filing is required, the MOD is submitted to the appropriate authority. The lender may coordinate this process or ask the borrower to complete certain steps through its authorised representative.

5. Security Remains Until Loan Repayment

Once the mortgage is created, the lender's security interest remains in place until the home loan is fully repaid. After the loan is cleared, the applicable release or cancellation formalities are completed. If you default on the loan, the lender may exercise its rights under the loan agreement to recover the outstanding dues.

Benefits of Memorandum of Deposit (MOD) in Home Loan

The MOD in home loan is primarily designed to formalise and document the lender's security. However, it also provides several benefits to borrowers, such as:

1. Security for the Lender

The main purpose of MOD is to provide security to the lender. Since the property serves as collateral, the lender has a legally documented interest in it until the loan is repaid. This reduces the lender's risk when providing a large amount as a home loan.

2. Clarity for Borrower

The MOD documents the mortgage arrangement and the borrower's obligation to repay the loan. It clarifies the property offered as security and the lender's rights over that security.

3. Legal Protection

Properly documented mortgage arrangements provide a legal framework between the lender and borrower. The applicable documents can specify the lender's rights in the event of default. It also records the process for releasing the security once the loan has been repaid.

4. No Need for Separate Collateral 

Since the property itself generally serves as security for a home loan, you may not need to provide additional collateral for the same loan. This means that your other assets will stay protected. 

5. Loan Repayment and Closure

The Memorandum of Deposit of Title Deeds also plays an important role when the loan ends. After the borrower clears the outstanding dues, the mortgage needs to be released through the applicable process. You can then obtain the relevant documents and complete the release formalities.

What are MOD Charges in a Home Loan?

MOD charges in a home loan are the one-time expenses payable by you for creating and documenting the mortgage against your property. These charges are generally calculated as a percentage of the total loan amount and may typically range from 0.1% to 0.5% of the amount borrowed. The maximum cap is ₹25,000.

This is a non-refundable expense which forms a part of the overall cost when you apply for home loan. The borrower is responsible for paying these charges as part of the mortgage documentation and home loan process.

Since MOD charges are an additional cost above the loan interest, you should obtain a complete fee breakup before finalising the loan. 

1. Factors That Affect Memorandum of Deposit (MOD) Charges

The amount payable towards MOD in home loan can depend on several factors. This includes:

2. How Are MOD Charges Calculated?

The calculation of MOD stamp duty and related charges depends on the state in which the property is located.

In some cases, the charge may be calculated as a percentage of the amount secured by the mortgage, subject to a prescribed maximum or other conditions. In other cases, a fixed or differently structured fee may apply.

For example, if a state rule prescribed a MOD charge of 0.3% of the secured amount, a home loan of ₹50 lakh would result in:

₹50,00,000 × 0.3% = ₹15,000

Borrowers should not assume that MOD charges will always be a particular percentage of their home loan.

How Is Memorandum of Deposit (MOD) Cancelled?

Once the home loan has been fully repaid, the lender's security over the property needs to be released. The borrower should therefore not stop at simply paying the final EMI. A typical cancellation process may involve the following steps:

1. Obtain a No Objection Certificate

After clearing the entire outstanding loan, obtain the lender's No Objection Certificate or loan-closure documentation. This document confirms that the borrower's dues have been cleared and that the lender has no further claim arising from the repaid loan.

2. Obtain the Release or Deed Receipt

Depending on the mortgage arrangement and state procedure, the borrower may need a release document, deed receipt or other document from the lender confirming that the mortgage is being released.

3. Complete Sub-Registrar Formalities

Where cancellation or release needs to be registered, you may have to approach the relevant Sub-Registrar's Office with the required documents. The lender may also be required to provide or authorise documents for completing the release.

4. Collect the Original Property Documents

The lender should return the original property title documents after all formalities have been completed. You should carefully verify that all documents that you had to deposit are given back to you.

5. Check the Property Records

After the mortgage is released, you should ensure that any applicable records reflecting the lender's charge are appropriately updated or removed. 

The exact procedure for cancellation of the MOD in home loan can differ between states. 

Is MOD Mandatory for Home Loan?

Whether the memorandum of deposit is mandatory for home loan transactions depends on: 

• The applicable laws
• The state where the property is situated 
• The mortgage structure used by the lender

A lender will generally require a legally valid security arrangement before or as part of disbursing a secured home loan. However, you should not assume that every home loan in India follows exactly the same documentation and registration procedure.

The borrower should check with the lender about:

• The type of mortgage being created
• Whether MOD is required
• Whether registration is necessary
• The applicable stamp duty
• Registration charges
• The documents required
• The process for releasing the mortgage after repayment

Things to Know About MOD Before Opting for a Home Loan

Before you apply for a home loan, it can be useful to understand the associated costs and responsibilities:

• MOD related expenses are separate from the interest payable on the loan. Include these costs while calculating the total amount required for your home purchase.
• MOD stamp duty and registration charges are statutory expenses associated with the applicable documentation. They are not refunded after you have repaid the home loan. 
• Signing an MOD does not mean that the lender becomes the owner of the property. 
• Do not assume that repayment of the final EMI automatically completes every mortgage-related formality. 
• Ask the lender for a clear breakup of fees and other related charges before completing the documentation. 

Conclusion

The Memorandum of Deposit or MOD is an important part of the mortgage process associated with home loans. It records the deposit of property title deeds with the lender and establishes the security arrangement against the loan. It is to be noted that MOD charges in home loan transactions are not uniform across India. You should therefore obtain a clear cost breakup from their lender before proceeding.

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