What is MOD in Home Loans?

MOD means Memorandum of Deposit. This deposit is paid by the borrower to the lender. It amounts to 0.1% to 0.5% of the loan amount, not exceeding ₹25000, irrespective of how much loan the borrower has taken.

MOD is a title deed, also known as a mortgage deed of the property being bought via the loan. Via this deed, the lender ensures that their name is a part of the house or the property they have given the loan for (they own the property). In future, in case the borrower defaults the lender has the right to possess the property. A MOD is a registered document, and it reflects on all the encumbrance certificates.

A MOD is one of the lesser-known charges. When an applicant takes a loan, they are aware of the concepts like the down payment, or the interest being charged by the lender. The borrower also pays a processing fee. MOD is also included in the total cost of the loan.

Is the deposit returned?

The MOD deposit is not refundable. Once the entire loan amount, including the interest and the principal, has been paid, there is a declaration that full possession of the property is given to the borrower. The borrower cancels the MOD. Depending on the respective procedures of different banks, the bank manager will go to the registration office and make a release deed that confirms that the encumbrances have been cleared and the property now completely belongs to the borrower, with no outstanding amount.

Is it mandatory if you want to take a home loan?

Signing the MOD and paying the fee is necessary everywhere in India if you’re taking a home loan. Every lender seeks a safety net before they give you the loan. Your property is the collateral. Hence, when you sign the MOD, you need to deposit all your property documents to prove that you are the owner. The bank or the lender wants to sign a MOD also so that there are no multiple mortgages on the same property. You pledge the property you are buying so that the lender can recover the money if you are unable to pay the EMIs. Therefore, it is also sometimes called a memorandum deed of your house property.

When is MOD on home loan cancelled?

The MOD on your home loan is cancelled when you have fully paid the loan amount, including interest. Then, your property is free from the lien. As mentioned above, someone from the bank or the lending company ensures that the documents in the registration office reflect your complete ownership and the title of the property does not include the name of the lender.

It is very important to apply to get the MOD cancelled as soon as all the EMIs have been paid. Although ideally, this step should automatically be taken by the lender or the bank, it may not happen on time, and in future, some sort of confusion can cause you ownership-related problems. Therefore, it falls upon you to follow the procedure and get your MOD cancelled as early as possible at the completion of your tenure. The cancellation of the MOD also signifies the fact that you’re free of debt.

Is there a special formula for calculating MOD in home loans?

The MOD needs to be executed by the lender. There are many formalities that are carried out on the lender’s side. Documents need to be processed and submitted. For all the services, the lender charges a fee. This fee is called the MOD fee or the deposit.

There is no set formula for calculating MOD on home loan. As mentioned above, the fee may be between 0.1% and 0.5% of the total loan amount taken by the borrower. The fee should not exceed ₹ 25,000 no matter how much is the loan amount.

Conclusion

Through the MOD, the lender protects its monetary interest. It is signed by the borrower when the bank transfers the loan amount to the borrower’s account. Until the entire amount is paid, the property belongs to the lender.

The text of the deed is prepared by the lender. The borrower needs to review it and then sign it. It is the duty of the borrower to ensure that the MOD is invalidated when the entire loan amount is paid and also ensure that all the information pertaining to the property is accurate in the release deed.