7 home loan payouts that you must consider before applying for a loan

By: | Published: April 23, 2016 1:24 PM

Let’s look at some of the home loan charges (including total interest payout) that you should be aware of before applying for home loan:

home loan - RBI monetary policyApart from these big ticket charges, lenders charge various fees and penalties for cheque swapping, cheque/ECS bounce, Duplicate Interest Certificate and Duplicate Balance Certificate.

If you are planning to take a home loan and scouting through the websites of various lenders, probably the only yardstick of your comparison would be their interest rates. However, that is not the only cost that you will incur for your home loan. Apart from the interest cost, there are numerous charges (some of them as high as 1–2% of the outstanding loan amount) that you must take into consideration – some of these charges are levied irrespective of whether your loan is approved or not. Comparing these charges can help you decide between two lenders offering similar interest rates.

Let’s look at some of the home loan charges (including total interest payout) that you should be aware of before applying for home loan:

Interest payout: A small difference in the rate of interest can lead to a sizeable hike in your EMIs and interest payout. For example, the difference in the total interest payout on two home loans of Rs 40 lakh for 20 years tenure with interest rates of 9.5% and 10% will be about Rs 3.15 lakh. The decision of choosing between a fixed and variable rate of interest will also impact your EMIs and interest payout. If you choose a fixed rate of interest, your interest payout and EMIs will remain the same throughout the tenure of your loan. Go for a fixed rate if you expect the interest rates to rise. Go for a floating rate if you expect the interest rates to fall in future. Also remember that longer tenure loan will mean a higher EMI for the same loan amount at the same rate of interest.

Processing fee: This fee is charged by the lenders to cover various expenses incurred during assessing your home loan eligibility and evaluating the value of your property. This fee varies from banks to banks and can range anywhere between 0.5–1 per cent. HDFC charges up to 0.5 per cent of the total loan amount (subject to a minimum of Rs 2,000) while Axis Bank charges 1 per cent of the loan amount or Rs 10,000 whichever is higher.

This fee is non-refundable irrespective of whether the loan is sanctioned or not. Although, you can use your negotiation skills to waive off or minimise the processing fee.

Prepayment charges: This charge is levied when you pay off the entire loan or a part of it before the due date. As the prepayment of the loan results in the loss of interest income to the lender, it levies the prepayment penalty on the outstanding loan amount/prepaid amount to cover a portion of the loss. However, this fee is only applicable on fixed rate home loans, as the RBI has barred the lenders from charging prepayment penalty on floating rate home loans. Axis Bank charges 2 per cent of the outstanding loan amount/prepaid amount as prepayment penalty while SBI does not charge any prepayment penalty.

Late payment charges: Lenders charge a late payment fee for delay in EMI payments by the borrowers. As this charge can be as high as 2 per cent per month (or 24 per cent p.a.) on the overdue EMIs, borrowers should take extra care to pay their EMIs within their due dates.

Switching fee: Some lenders allow their borrowers to convert their fixed interest-rate home loans to floating rate home loans and vice versa. Similarly, many banks allow their borrowers to reduce their existing loan’s interest rate to present interest rate applicable to new borrowers. In lieu of this conversion, the lenders charge a switch (conversion) fee. For example, Axis Bank charges 2 per cent of the outstanding loan amount for converting fixed rate home loan into floating rate home loan while ICICI Bank charges 1.75 per cent of the outstanding amount for the same conversion.

CERSAI charge: Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) was set up in 2011 to maintain a central registry of all mortgaged properties. The aim of the registry is to stop people from availing multiple loans on a single property. The lenders can access the registry by paying a fee to it, which is then recovered by the bank through the CERSAI charge or through processing fee. CERSAI charge is payable to the bank irrespective of whether the loan is sanctioned or not.

Administrative charges: Some lenders also charge a one-time non-refundable administrative fee for the purpose of legal verification and valuation of the property. ICICI Bank charges Rs 5,000 as administrative charges and while GIC Housing Finance charges 1 per cent of the loan amount as administrative fees.

Apart from these big ticket charges, lenders charge various fees and penalties for cheque swapping, cheque/ECS bounce, Duplicate Interest Certificate and Duplicate Balance Certificate. Some lenders may also force you to buy life, critical illness, disability insurance plan or home insurance policies while availing home loans. Although, it is a good practice to have such insurance policies, compare their premiums and benefits with other policies available in the market before signing the loan documents.

To sum it up, availing a home loan is a costly affair and the total payment made for availing a home loan can often be twice the principal loan amount. Therefore, make sure to compare your total interest payout and all those innumerable charges mentioned in the loan document before settling on any particular lender.

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