We always see so many advertisements in print media or electronic media everyday that shows that the home loans are now available at very lower interest rates of 8.5% per annum. No doubt, these interest rates are among the lowest in history and this is definitely a good time to invest in a property of your choice. However, before you raise your eyebrows and get inspired to jump on the band wagon, you do need to keep in mind that these interest charges are only the part of the cost of borrowing a home loan. There are certain additional charges that are associated with a home loan.
Processing fee is usually charged as a percentage of the final amount of the loan disbursed to the applicant. Usually ranging from 0.5% to 2.5% of the principal amount, it is a considerable cost in addition to the interest payments. Considering this, if a home loan of Rs. 75 lakhs is approved, the processing fees can range from Rs. 37,500 to Rs. 187,500. The best part is that this is a one-time payment and is included in the home loan EMI. Therefore, the processing fee is hardly noticed by most of the borrowers. Another factor to keep in mind is that this fee is in most cases non-refundable (depending on the case) i.e. even if the loan application gets rejected, the applicable processing fee has to be paid.
Prepayment refers to paying an extra amount more than the home loan EMI that is due for that particular month. In case of part-prepayment, only a portion of that extra amount is paid i.e. a portion of the home loan remains unpaid even when the amount paid is greater than the EMI due. In case of foreclosure, the home loan amount is completely paid off before the tenure is completed. At present, the Reserve Bank of India has made it mandatory that banks cannot charge for prepayment or foreclosure on a floating rate loan, however, these charges are applicable in case of a fixed interest rate home loan.
When the home loan is applied, the bank does a rigorous examination of the property that you intend to purchase. Such intensive scrutiny includes fee and is not limited to valuation, documents check and legal check. This is a one-time fee applicable at the initial period of the loan application process and can be charged as either a flat fee or a percentage of the loan amount that is sanctioned depending on a case. This fee is also non-refundable irrespective of the approval of the loan or not.
At the time of finalization of the loan disbursement, you have to submit either post dated cheques (PDCs) or an ECS mandate to the Bank/ NBFC’s for loan repayment. These PDCs or ECS are the account specific instructions given to the Bank and in case you decide to change banks or get the specific account for loan repayment closed, you have to submit new PDCs or ECS instructions to the lender. In such cases, the bank charges the swap charges. This is a charged at a flat rate i.e. every time you resubmit your PDCs or ECS mandate, these swap charges will be imposed.
Late Payment Charge
In case you failed to make regular EMI payments within the specific due dates, the lender demands a late payment charge on the overdue amount. This late payment charges usually ranges from 2% to 4% on the overdue amount and is charged every time the EMI due date is missed. However, this penalty amount might seem trifling considering the allotted home loan. Delayed payments are reported to credit bureaus and are reflected in your credit report. These late payment reports adversely affect the credit score and make it more difficult to apply for loans or credit cards in the near future.
Table of comparison of home loan charges being charged by the leading banks: