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Understanding MOD Charges in Home Loans: Meaning, Fees, And Its Impact

What Is MOD and What Is the Role It Plays?

When you take a home loan, what security does the lender have? Obviously, the bank has the mortgage on the property to the extent of the loan. However, the borrower and his family are staying in the property, so what does the bank have to signify this charge?

That is done by the Memorandum of Deposit of Title Deeds (known as MOD or MODT).

Under the Memorandum of Deposit of Title Deeds, the original title deeds of the property are deposited with the bank and against that, a memorandum of deposit of title deeds is signed. The MOD/MODT clearly lays out the rights and the obligations of the borrower and the lender with respect to the property, till the MODT is cancelled. In the past, the MODT was not mandatory, but under new RERA regulations, the signing of a MODT is mandatory. Every bank must sign and execute the MOD or MODT on stamp paper, which is evidence that original title deeds have been deposited with the banker.

Are there Any Charges for Signing The MODT?

When the MODT (or MOD) is signed between the bank and the borrower, it creates a contractual relationship. There is a stamp duty and processing charges involved in these MOD charges for home loan. Normally, these charges can range between 0.1% and 0.3%.

However, the stamp duty payable on the MOD deed agreement cannot exceed Rs. 25,000 overall.

Banks may also impose additional costs like administrative charges, custody charges, insurance charges etc. on the customer. These charges are billed by the banker entirely to the end client. In a sense, this is an important document as it protects the interests of the borrower and the lender. If you specifically look at the MOD charges for home loan, at 0.3% on the higher side, for a loan of Rs. 50 lakhs, the MOD charges will work out to Rs. 15,000. Of course, you can negotiate with the bank for lowering of administrative charges.

How MOD Protects the Interests of the Lender -

The bank is taking the credit risk on the borrower and the home loan amounts are generally large. There are various risks. The borrower may run into financial problems and may delay EMIs. Any likely default or delay in payment is a risk for the lender as they have to report it to the regulator and make provisions too. Secondly, the value of the property may fall sharply and in that case, the bank may find that the loan may not be fully covered.

In the above cases, the bank can ask the borrower to pay off part of the loan or offer additional collateral. All these terms and conditions including what the bank can take recourse to in the even of default by the borrower are covered in detail in the MODT. That is why the MODT is a critical document for the bank as it formally and legally, protects the interest of the bank as the lender against the house property.

How does MOD Protect the Interests of the Borrower?

While MOD charges for home loan are payable by borrowers, one standard question is - Why should the borrower pay for the MOD charges, when it is the banker who benefits from the MODT?

That is incorrect!

The MODT is intended to protect the interests of the borrower by documenting the nature of relationship on paper. MODT clearly lays out, under what circumstances the bank can ask the borrower to part pay the loan or bring in additional collateral.

Similarly, the MODT also clearly lays out under what circumstances the bank can repossess the property. The process flow like the notice period, the cooling period etc. before the auction are also laid out.

Above all, MOD also mentions how the bank must return all the property title deed documents along with No Objection Certificate (NOC) and other link documents on full repayment of the loan. In case, bank is delaying return of title papers, the borrower can use this MOD as the guiding document to demand the title deeds.

What Does the MODT Actually Entail?

There are various steps in the MODT (memorandum of deposit of title deeds) apart from the MOD charges for home loan –

  • The first step is to deposit the original title deeds with the lender with the rights and obligations governed by the MOD.
  • The MOD charges have to be paid upfront before the bank executes the agreement. MOD offers repossession assurance to the lender and return of title deeds to the borrower on successful repayment of loan.
  • The last step is the MOD cancellation, which is done after the original title deeds are returned to the borrower on completion of the loan repayment.
  • With the MOD cancelled, the bank issues the No Objection Certificate (NOC) and after that the borrower can apply to the registrar for registering the property in their name.

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