A candidate might be liable to pay additional fees on top of the equated monthly instalment when applying for a home loan. But, these fees will differ among lending institutions. Additionally, some lenders may charge these fees separately, while others may club these together. Furthermore, some fees are computed at a fixed percentage of the house loan balance. But, these fees can increase the overall cost of the loan, including the housing loan interest rate. Thus, it is crucial to be aware of them.
List of common home loan charges
Some of the common charges that most lending institutions levy are:
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Processing fees
A processing fee, which includes all loan processing expenses, can consist of 1% to 2% of the loan amount. This includes administrative expenses like reviewing an application, analysing financial accounts, investigating the property, and checking all paperwork.
Moreover, the costs for printing and posting the principal and interest statements for a loan are included in this category. Hence, a lender should ideally only charge the borrower a nominal fee for this feature. But, leading financial institutions can also eliminate it in certain circumstances.
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Interest rate
This is the amount that prospective borrowers must pay to access their money. However, as every lender has a different policy to levy interest rates, borrowers should compare and negotiate with a reputed financial institution for a reasonable interest rate.
This is because a high credit score makes an applicant more trustworthy and increases their creditworthiness. In this regard, most leading financial institutions prefer a credit score above 750 and might provide such applicants the lowest home loan interest rate. For instance, increasing a credit score is one of the best and most effective ways to decrease a home loan interest rate.
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Foreclosure charges
Foreclosure charges consist of the fees that a borrower is liable to pay to get their loan foreclosed. So, if one opts to close their loan before the tenor, it safeguards the lending institution’s interests.
Hence, prospective borrowers should look for a lender with a low foreclosure charge to ensure that he/she gets an affordable home loan.
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Security fee
This security fee is primarily charged by a financial institution that provides online services to its customers. Mostly, this money is used by lenders to protect online payment systems and gateways from malware and other cyber-attacks.
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Pre-payment charges
When borrowers make a pre-payment toward the loan’s principle, they must pay a pre-payment charge. But, to make a loan more affordable, experts advise opting for a lending institution with minimal pre-payment charges. Also, individuals can later choose to refinance their housing finance with an affordable lender.
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Penal interest
Penal interest is fine that borrowers must pay if they make a late payment, fail to pay their monthly instalments on time or default on the loan itself. Generally, this averages out at about 2% per month but is likely to vary with lenders.
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EMI bounce charges
An EMI cheque can bounce in certain circumstances. In this regard, the most common cause is a lack of funds in a customer’s bank account. So, applicants are liable to make a one-time payment as bounce charges for each time a cheque is rejected.
As all these factors account for the affordability of a home loan, it is best to look at the specific details before a home loan application. So, a home loan interest rate calculator will be best, and most importantly, it’s free to use.
In India, selected HFCs extend pre-approved credit offers that simplify and expedite loan processing. Such offers are available on various financial products like loans against property, home loans, etc. Individuals can enter their name and contact number to check their pre-approved offers.
Hence, a financial institution levies various charges on a home loan, including a home loan interest rate. Furthermore, as this depends on the lender, it is best to consult with the preferred financial institution to know the exact rates and avoid taking credit beyond repayment capacity.
