RBI’s decision to keep the repo rate unchanged after their monetary policy meeting in February has brought good news for prospective home loan borrowers. The reason being home loan interest rates are likely to remain unchanged.
Nevertheless, before applying for one, you should be mindful of processing charges, to evaluate the overall cost of borrowing beforehand.
What are home loan processing charges?
Home loan processing charges refer to specific fees that a lender charges when accepting a loan request. Following a successful application, financial institutions will go through the documents and complete necessary checks to determine borrower authenticity.
Typically, lenders charge a portion of the loan amount as such charges, or they may have a flat fee for this purpose. Here is an example for better understanding –
Reputed financial institutions charge 1% of the loan amount as processing charges, where the minimum is Rs.1,000 and the maximum is Rs.10,000. Therefore, if you apply for a loan of Rs.20 lakh, you are liable to pay the maximum threshold, i.e. Rs.10,000 as processing fees.
Apart from the processing charges, here are some additional fees associated with home loans.
● Administrative charges: Financial institutions often split the processing charges, and add administrative fees as a part of it. The difference here is that processing charges are levied before the sanction of a loan amount, and administrative one is charged following the approval.
● GST: Since it is a consumer product, it comes under the umbrella of GST. Even though the loan amount is not under this indirect tax, but the processing charges, administrative charges, etc. are under its purview. However, one can save tax on home loan interest payments, while filing for ITR.
● Stamp duty: Stamp duty and registration charges are levied on the purchase of a property. When you submit the sales deed and initiate the name transfer process to get a particular property registered in your name, you need to bear this additional cost. Additionally, one should be aware of the stamping and franking charges on home loans.
● Legal fees: After the loan application, the financial institution involves a third party to perform legal and technical verification. This process will allow the lender to check whether a particular property has any legal issues. Furthermore, the technical verification will ensure the correct property value. Since this includes hiring respective experts, the financial institutions levy this charge to pay for their services.
● Late payment charges: In case of a home loan EMI default financial institutions will levy a late payment charge.
● Foreclosure charges: If you complete the payment of your loan before the end of the tenor, in that case, the lender may ask for a foreclosure charge. However, one must consider some pointers before foreclosing their home loans.
However, reputed lenders often do not levy such charges on home loan repayments. Additionally, they provide pre-approved offers that further increase customer convenience. It streamlines the application process and saves time. This offer is applicable on financial products like home loans, loan against property, etc. You can check your pre-approved offer by submitting your contact details.
Therefore, it is vital to evaluate these charges before applying for a home loan to understand the total cost of borrowing. Apart from these, one needs to check the home loan interest rate, tenor, down payment, etc. beforehand to avoid facing any issues in the future.
Since home loan interest constitutes a significant portion of loan repayment, it is vital to calculate it before applying. It will help you to plan your finance accordingly, avoid facing any financial strain.