What is MOD in Home Loans: Meaning, Charges, and Full Form

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17 OCTOBER, 2022

When you apply for a Home Loan, the lender usually asks you to submit many 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 Loans, MOD full form - Memorandum of Deposit is a document executed by the bank. It is signed by both the lender (bank) and the borrower (home loan applicant). Usually, the MOD in a home loan is finalised as the last instalment is disbursed into the borrower's loan account. It constitutes a significant fee, paid in addition to processing charges. 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 multifaceted 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. Ensure a smooth mortgage release by having the document registered beforehand and contacting the SRO office for further steps

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.

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 dual-fold. On one hand, it provides a sense of security to lenders, facilitating smoother loan approvals. On the other hand, borrowers benefit from a streamlined and transparent lending process, knowing that their property rights are protected 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, that much is clear. 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, formalizing 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 Rs. 20 lakhs, the MOD charges at 0.3% amount to Rs. 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 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?

Now that you can know the full form of MOD, the meaning of an MOD and MOD rates for a home loan, a few considerations remain: cancelling an MOD. As the borrower repays the instalment 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.

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.

Frequently Asked Questions

What does MOD stand for in banking

MOD in banking stands for Memorandum of Deposit. It is a document outlining terms and conditions related to a deposit. This memorandum clarifies the deposit amount, interest rates, and other pertinent terms agreed upon by the bank and the depositor.

What factors contribute to the calculation of MOD charges?

The key factors contributing to calculating MOD charges include deposit amount, interest rates, and terms agreed upon by the bank and customer. The charges typically range from 0.1% to 0.5% of the home loan amount.

How frequently are MOD charges calculated and applied?

The borrower must pay the MOD charges once the property gets registered in their name or upon receiving the initial loan instalment.

Is MOD applicable to all types of accounts, or only specific ones?

MOD is primarily associated with Home Loans, outlining terms for a deposit during the loan process. Depending on the bank's policies, its applicability may vary across different types of accounts and transactions. Reviewing specific account terms is essential for clarity on MOD's relevance.

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.