Select a housing Loan, Also Check these Five Fees!

By Mr. Rajiv Raj, Creditvidya.com

So you have done a comparison study & found out about who is offering the best housing loan interest rates. Great!

Does that mean you can go in for the big purchase now?

No! Have you looked at all the ‘other charges’? Well, read ahead to know more about the various fees applicable on home loans.

The sum of all the ‘other charges’ is a significant amount; large enough to burn a big hole in your pocket.

Education & awareness are the keys to avoid getting ripped off in real estate transactions.

Ignoring the fee bit while focusing merely on interest rates can cost you dearly. Institutions incur charges while processing the loan and they have to make up for it somewhere.

So if a lender is waiving off the fees then the interest rate will be definitely higher. While you are shopping for a home loan, do consider the various fees mentioned below for comparison.

(1). Application fee..!

Sometimes this fee is collected towards processing of your loan application. This fee is collected upfront irrespective of whether your loan is sanctioned or / not.

The application fee amount is non-refundable.

In case you happen to change your mind after going in for a loan application from an institution, the loan application fee will be the minimum cost you will have to bear.

So make sure you have completed your research & have finalised the lender before going in for the loan application.

(2). Processing fee..!

This fee has to be paid upfront along with the loan application. Processing fee is non-refundable. However, many banks offer the option of paying a part of this fee along with the loan application and clear the balance fee before disbursal of the loan.

Depending on the Band / Housing Finance companies this fee can either be a flat fee  (example Rs. 5,000 or Rs. 10,000) a percentage of the loan (example o.5% or 0.75%). 

It is up to the lender to provide a relief on this fee.

Your negotiating skills can definitely help here to have this fee waived or / minimised.

 Rajiv Raj, Creditvidya.com

3. Mortgage deed fee..

Mortgage deed charge is one of the major charges you need to cough up when you opt for a housing loan.

It is generally a percentage (1%) of the home loan and forms a major chunk of the total fee amount you need to pay for availing the loan.

4. Legal Opinion fee..!

Institutions generally appoint external lawyers to verify the legal status of the property. The fees charged by the lawyers for this activity are passed on by the institutions to the clients.

However, if the said property has already been legally approved by the institution then this charge is not applicable.

You must check with the institution to find out if the project wherein you are investing has already been approved by them. That way you can save up on the legal opinion fee.

(5). Prepayment penalty..!

When a borrower pays the entire or a part of the outstanding loan before the due date, it is termed as prepayment.

Prepayment results in an interest rate loss for the lender.

Hence, a penalty is charged to cover this loss to some extent. These charges vary according to the lender and the type of loan availed.

However, the Reserve Bank of India (RBI) has directed all banks not to charge prepayment penalty on housing loans that are on floating interest rate basis.

For fixed rate housing loans up to 10 years or 20 years or 15 years or 20 years, however, there is a prepayment penalty charged at a flat rate, which is typically about 2% of the prepaid amount. So, in case you have home loan pre-payment in mind this factor must be considered.

Also, while evaluating check if going in for a floating rate of interest is more feasible for you.

About Mr. Rajiv Raj..

The author Rajiv Raj (www.creditvidya.com) is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector.

Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

Free Credit Counselling 022- 4012 4545 

Email: info@creditvidya.com

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