MOD in Home Loan: Meaning, Charges, Full Form & Its Impact

When you apply for a Home Loan, the lender usually asks you to submit a range of documents. They require documents related to your identity, address, income and—most importantly—property. Besides, they also ask you to sign a few undertakings, including the MOD.

Let's learn what is MOD and how important it is in the Home Loan process.

What is MOD in Home Loan?

MOD stands for Memorandum of Deposit, which is a legal document signed by both the lender and the borrower to create an equitable mortgage. 

It serves as proof that the borrower has deposited the property's title deeds with the lender as collateral for the loan, giving the lender a legal claim on the property until the loan is fully repaid. 

The MOD ensures the lender's security, details the terms of the loan, and is finalized after the last loan instalment is disbursed.

Now that you know the MOD meaning, let's look at the MOD charges for Home Loan.

What are MOD Charges in Home Loan?

When it comes to MOD charges for home loans, it's advisable that you know what these fees entail. Typically ranging between 0.1% to 0.5% of the total loan amount, MOD charges serve as a vital component of the home loan process. Breaking down the components of charges related to MOD in banking, borrowers encounter a multi-faceted structure that encompasses various administrative and processing costs.

These may include documentation fees, administrative expenses related to the creation and maintenance of the MOD, and processing charges associated with the legal aspects of registering and releasing the Memorandum of Deposit. It's crucial for borrowers to comprehend these provisions in order to make informed decisions and ensure a transparent home loan journey. To ensure a smooth mortgage release register the documents beforehand and contact the SRO office for further steps.

Who pays the MOD-related Charges?

Although the MOD is executed by the lending institution, the borrower is responsible for paying the associated charges, which typically ranges from 0.1-0.5% of the total loan amount.

What is the Significance of MOD in Banking

In the banking industry, the Memorandum of Deposit holds significant relevance, acting as a pivotal instrument that safeguards the interests of both financial institutions and borrowers, particularly those with home loans. The essence of MOD meaning in banks lies in its role as a legal undertaking, offering a structured framework for managing the lending process.

For customers—especially in the context of home loans—MOD serves as a protective shield, assuring lenders of collateral in the form of property deeds. This legal document enables banks to repossess the property if a borrower defaults on the home loan, minimising potential losses. Moreover, it empowers lenders to auction the property to recover dues in case of non-repayment.

The impact of MOD on customers is twofold. For lenders, it provides a sense of security, facilitating smoother loan approvals. For borrowers, it ensures a transparent lending process and protects their property rights under the legal framework of the Memorandum of Deposit. This symbiotic relationship underscores the meaning of MOD in banking: for creating a trustworthy and secure home loan.

How MOD Works for Home Loan?

A Memorandum of Deposit plays a crucial role in the context of home loans. In order to better define MOD, let's break down the process into steps:

• Undertaking Deposit: Upon loan approval, the borrower deposits property title deeds with the lender, formalising their commitment through MOD.
• Calculation: MOD charges, typically ranging from 0.1% to 0.5% of the home loan amount, are computed.
• Repossession Assurance: The MOD serves as a legal document ensuring lenders the right to repossess the property in case of default, providing a safety net against potential losses.

For example, on a home loan of ₹20 lakh, the MOD charges at 0.3% amount to ₹6,000. This structured process secures both the borrower's and lender's interests, defining the essence of MOD in home loans.

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 should conduct proper planning before applying for a home loan. Using Home loan EMI calculators designed to compute monthly installments and assessing future expenses can help loan applicants avoid 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?

Now that you are aware of MOD and its importance, a few considerations remain: cancelling an MOD. Once the loan is fully repaid, it is the lender’s responsibility to cancel the MOD and set the property free to the borrower.

As the process, the lending institution sends its representatives to the registration office to draw a release deed. Once the registration department is notified to release the MOD, they clear it. 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 . Instead, it would be best if you request a deed receipt executed by the lender in favour of the borrower. However, if your lender still asks you to cancel your MOD, you may follow the below steps:

• Obtain an 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.
• Request a deed of receipt from your lender.
• 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 ₹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.

Read also: Bhoomi Online - Karnataka Land Records RTC

What is the Process for Cancelling a MOD?

Now that you understand MOD, one component remains: cancelling an MOD.

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.

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 request a deed receipt executed by the lender in favour 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.

Cancelling MOD Online

You may also cancel the MOD online by following these steps:

• Visit the website and click on "Deed of Receipt" and link to the original MOD
• Fill in the required details and make a payment of less than ₹200 through online net banking
• Schedule an appointment by initiating a token after making the payment
• Attend the appointment where the registrar's deputy will conduct a preliminary review and tag the document as reviewed
• The document will go to the registrar who will review the bank representative's credentials before approval
• Biometric verification, a fingerprint scan and photograph of the borrower will be collected
• Payment verification will be done, and you may have to pay any additional charges if required
• Final submission - a biometric copy, payment receipt copy, and the Deed of Receipt will be 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.