Many say closing your mortgage loan is the fourth happiest moment of your life, after perhaps, your first love, the birth of your child, securing that promotion you have always yearned for at the workplace.
I would, in fact, rate it much higher and add an after-sentence. Mortgage loan closure may be one of the happiest but can/will be the most daunting moment in your life. I can guarantee the extraordinary ordeal of paperwork you will go through with almost every bank in India today. As a consumer of financial service products over the past 20 years, I have secured & repaid four personal loans, one car loan, one two-wheeler loan, two cash advances on credit cards, one gold loan, three loans against shares, half a dozen hire purchase schemes from finance companies, two indigenous chit funds, countless revolving credits, however, none quite compares to the holy grail called mortgage loan.
My intention on this piece, is to not show banks/FIs in poor light but to emphasize (as the voice of an average consumer in India), what it feels to go through the ordeal of mortgage loan closure, owing to the sheer multiplicity of stakeholders involved, and the time one needs to commit to this process. I have had 3 experiences with Banks, and I wish to specifically recount them here purely for experience sharing.
I had availed a car loan from Bank ‘S’ in 2011. The loan had a repayment tenure of 7 years, loan amount sanctioned was Rs. 5 Lakhs, 85% of on-road price was funded by the bank with reasonably minimal paperwork. Back then, when I had originally availed the loan from their loan division in M.G. Road, Bangalore, all it took me was a single visit to their office, some documents to sign, and a sanction that came in 48 hours flat. Customer Delight!
Cut to May 2015, when I decided to pre-close the loan, I scrambled around for the Bank’s co-ords. The loan division in M.G. Road had transferred my loan account to their Banaswadi Branch – It was funny why the loan was being serviced out of a branch, 25 Km from where I lived. Anyway, visited the branch in person, handed over a closure letter, and authorized them to hand over my original documents (Smart card of Registration Certificate, Loan Closure letter, and No Objection Certificate), which they said will be shipped to my home address in 15 days. In June 2015, Bank ‘S’ promptly debits my a/c towards car loan repayment (guess what, someone had forgotten to remove the ECS mandate on my account). It took me 6 months, 19 emails, 2 personal visits (Chief manager who was dealing with my issue had transferred elsewhere, and his replacement obviously had no clue) 5 escalations (zonal, regional, national heads of Bank ‘S’ from whom I had received no response), 1 Presidential complaint, 2 more escalations to Ombudsman, One in July 2015 to which I received an automated response, and the second one in Oct 2015 to which I finally received an email response that ‘a concerned person’ will address my issue at the earliest. Finally, the amount of Rs.11,391 was credited to my account on Nov 28, 2015, along with the original document set. Six months to close the a/c! Not even a word of apology from Bank ‘S’, till date. Compare this to their 48-hour express loan sanction process.
I had just joined Bank ‘I’, and decided to avail a Mortgage loan (popularly called the Home loan in India). As usual, the process took about 3 weeks from the time the initial request was made until sanction. As an employee of Bank ‘I’, I was offered a 1% interest subsidy (small perks of working for a Bank), signed a ton of documents (and we blindly sign them all, don’t we?), supplied my personal & financial credentials unwittingly to a 3rd party DSA, took out insurance from a carrier I failed to recollect 10 years hence, and then moved into my new home. This was 2008.
Cut to 2017, I had put up my house on sale (since we were relocating cities) and wrote to the bank to understand the process involved in the closure. Here is a bunch of things you need to know for closing a mortgage relationship with your Bank.
Firstly, While RBI says, there is no restriction on part payments, and prohibits banks from levying foreclosure charges/pre-payment penalty on floating rate term loans vide circulars issued first in 2012, and then re-notified in 2014 (see a link to circular below).
As luck would have it, my case was different. My loan was issued at a fixed rate (pegged at Prime rate + margin). Hence pre-payment/foreclosure was completely at the discretion of my Bank. As per my loan agreement, foreclosure attracted a whopping 3% of total outstanding (roughly 90k) and involved pre-authorization from Bank before I could even apply for closure.
Secondly, since the buyer of my property decided to take a home loan for availing tax benefits, I had to not only close the loan but also apply for No objection certificate, hand-over original property documentation to my buyer’s Bank, and ensure discharge of deed - all within 30 days. While we set out to complete the transaction in 30 days, things panned out way differently.
I contacted the Bank in Sep’17 to understand the process.
Basis what they told me, we finalized the property deal with the buyer in Feb’18 on the premise that we will register the title in their names within 30 days, and hand over physical possession soon after, the bonafide statements of which were executed on stamp paper. On this mutual understanding, we proceeded to transact.
08 Feb 2018 – Wrote to Bank ‘K’ (Bank ‘I’ had now merged with Bank ‘K’) requesting for a foreclosure statement. After several calls & reminders, Branch officials finally informed that my request was untraceable on 21st Mar, so I had to raise a new request. The case was re-assigned to Retail asset operations on 10th Apr, no action taken. As I was an ex-employee, mustered my connections and escalated to National Head on 22nd Apr. Finally received my foreclosure statement via email after 10 weeks of follow-up. Story repeated itself when I had to obtain LOD, and original property documents (LOD is called List of document, which is basically all the original property documents that Bank’s keep with themselves as security – Original receipts paid to builders, Original Sale & Construction agreements, Guarantor forms, Original sale deeds/titles, Postdated cheques). Finally, after supreme follow-ups, Bank intimated me that mortgage loan could be closed on 28th Jun 2018. In what was a mere 30-day process for them had now spawned to 5 months! No marks for guessing, this time also, not a single word of apology for putting me through all this trauma, multiple visits (between Bangalore & Mumbai), phone calls/emails/escalations, loss of face to my buyer, harassment from my buyer’s bank etc.
This time we had approached ‘Banker to every Indian’. Being wiser from our previous experiences, we knew what to expect. The mortgage was in pre-EMI mode until full construction/hand-over, we had read about floating rates cutting over to MCLR, and so proactively approached the Bank, and smartly re-priced the loan with an upside benefit of almost 150 Bps. Negotiated hard on interest rates, linked disbursements to builder milestones, kept knocking off principal through random bullet payments, even though the loan wasn’t fully converted. There were more reasons than one to feel happy with Banker to every Indian, as the entire process was smooth as silk.
The loan was sanctioned in 3 weeks, disbursements happened within 7 days of the written request, they had a dedicated loan processing center, the branch manager whom I had met was refreshingly customer focused, and readily agreed to waive off interest switching charges, and recommended repricing of my loan from BPLR to MCLR. Dream start to a mortgage relationship. This was 2016!
Cut to Feb 2019, when we went to close the mortgage loan. Skeletons trickled down.
Shocker #1, property registration can only be scheduled after Bank provides appointment and confirms in the affirmative that documentation is in order. Customers have to visit in person along with demand letter, no due clearance from the builder, registration request, authorizations from all owners (in case of joint ownership).
Shocker #2, the outstanding loan cannot be repaid until the property is registered, and MOD created. So, any customer who wants to close the loan prematurely has no option but to wait out until registration is completed, title deeds are dispatched from sub-registrar’s office, and deposit of original documents with the Bank for review. Until which time, the customer has to continue servicing interest.
Shocker # 3, Arbitrary demand for paperwork at the last minute by the bank (in my case, consolidated TDS receipts, and Form 26QB – which is an Acknowledgment for the information regarding TDS on sale of property submitted to Tax Information Network (TIN), and not necessarily payment of taxes which is reflected in Form 16B. Photocopies of DDs (Issued by Builder/Customer in favor of Sub-Registrar), now this document is irrelevant to the Bank.
Shocker # 4, ‘Banker to every Indian’ does not send representatives to Sub-registrar office, they expect customers to finish all formalities themselves, create MOD, apply for encumbrance certificate for 1 day, collect & handover all original property documents from Sub-registrar office to the central processing division within a period stipulated by the bank. How audacious! Original sale deed usually takes 7-10 days to arrive, EC takes 1-2 days, other original documents are safe-kept with the builder (in most cases). Builder & Bank who are present in the same city, 5 KM apart, won’t talk to each other but expect their customer 950 Km away to coordinate simple document exchange tasks among them.
Shocker # 5, when I visited ‘Banker to every Indian’ to close the mortgage, the process was even more inexplicable. First, their central unit asked me to write to my home branch to close the loan, settling Re 1 less than the outstanding balance. Then request the Branch for closure and on-ward confirmation to the central processing unit. I went to the Branch on the designated date, only to be told that my Home Branch & Loan servicing Branch is different and that the request must be effectuated at the loan servicing branch. I somehow managed to get that done and go to the central processing unit with my requisition for loan closure. I waited for 5 hours, only to be told that my file has been missing for the past 3 days. I mean, how does one explain a missing Mortgage file from the vault of a highly secure central processing unit! After an animated escalation to the CGM, the file miraculously appeared out of thin air!
Let’s face it, Banks cannot and will not become customer-centric overnight. Their processes are so siloed that changing them will require serious corporate will. I feel there is a huge opportunity for FinTechs to partner with behemothic banks and simplify some of these processes. Look at DBS, nearly 100% of their processes can be done online without the need to visit a branch.
Opportunities for FinTechs
Customers need high engagement during real estate transactions, Banks have a fiduciary responsibility to be more sensitive towards customers who avail mortgage loans, and FinTechs can play a significant role here. FinTechs could design/offer several bespoke solutions to Bank’s customers, some of which have been articulated below:
1. Use public APIs to connect Banks & Sub-registrars to digitize some of the request/response forms that flow to & between offices. This will greatly reduce physical workflow and corruption!
2. Allow external connectors to make system-generated letters & correspondences available for fulfillment – Items like LODs, Amortization schedules, Foreclosure letters can be automated.
3. Plumb into Bank’s Indirect Tax collection modules for customers to remit TDS on behalf of buyers/sellers (Parties have to pay TDS amount on total sale consideration to the Income Tax account within the stipulated period of sale consideration). Generation of Acknowledgement/Form 16B could be auto-generated and shared across the network.
4. Offer secure gateways to consumers intending to purchase Non-judicial e-stamps (as per article 5, agreements relating to the sale of immovable property) along with online payment of stamp duty in an integrated environment.
5. Offer APIs for the creation of affidavit (as may be required by state departments) in case buyer/seller is new to the city
6. Offer APIs for ordering Revenue stamp for receipt management, sale agreements (https://kaverionline.karnataka.gov.in/)
7. Offer a bunch of services from Sub-registrar to Bank’s customers (through their Mobile Banking apps) – Valuation communication, Endorsements, EC requests, Khatha requests, Khatha certificate issuance, dispute resolutions at Deputy Commissioner under Section 45 A of Karnataka Stamp Act. Reconveyance of Deed (Form 16), and discharge of mortgage/charge/lien over property released in order to make property clear and marketable being free from all encumbrances.
8. Offer APIs to independent lawyers/property consultants/real estate specialists
9. Offer APIs to facilitate interim guarantees for sale of property under transfer to another Financial Institution/Bank
10. Offer transliteration services, only select banks offer transliteration certificates presently – illiterate persons who affix signatures on documents in vernacular languages, translation witness (they are hard to find in cosmopolitan areas), verifiers of vernacular signature/LHTI (Left Hand Thumb Impression).
11. APIs to Insurance carriers for policy administration, closure, claim settlement
12. APIs to Will management companies
13. APIs to other government agencies like BESCOM (Name transfer of electricity meter, upgrade/downgrade of allowable load factor)
14. APIs to pest control for transfer of contracts
15. APIs to Utility companies – RO/Water purification company, Teleco, Broadband/Cable operator,
16. APIs to platforms (like https://www.zippserv.com/#cleanproperties) offering independent lawyers, inspectors, value adjustors to oversee the property transaction (Affidavit, Power of Attorney, General Power of Attorney, Market valuation, Inspection of property by a certified chartered engineer)
17. APIs to online tax advisory platforms (https://myitreturn.com/) for computation of Income/Loss from house property, claims for tax exemptions on pre-EMI interest, auto-filling of interest & principal on form 16 for AY
18. APIs to start-up services like https://www.switchme.in/