Don't let 'other charges' keep you trapped in the home loan maze

You might have done all comparisons and zeroed on the best home loan interest rate. But did you go through fine print and read about “other charges” before making the big purchase?

It is important to go through all charges as the sum of all the “other charges” is sometimes big enough to burn a hole in your pocket. And as the wise men say, knowledge and awareness are the keys to avoid getting ripped off in real estate transactions. So, make use of the below mentioned tips and find way out of the loan fee maze.

Application fee
This fee is collected while processing loan application whether your loan is sanctioned or not, and it is non-refundable. In case you change your mind after applying for a loan, this application fee will be the minimum cost you will have to bear.

Processing fee
This, too, is non-refundable and has to be paid with loan application. 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 organisation, this fee can either be a flat fee or a percentage of the loan. 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 off or minimized.

Mortgage deed fee
This is one of the major charges you need to cough up when you opt for a home loan. It is generally a percentage of the home loan and forms a major chunk of the total fee amount you need to pay for availing the loan. Some institutions waive off this charge to make the home loan look more lucrative. Before you make this as an evaluation factor to choose the lender, check for the interest rates or any other charges wherein this may be compensated.

Legal fee
Institutions generally hire lawyers to verify the legal status of the property. The fees charged by the lawyers for this is 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 or not. Else, you will end up paying the legal fee.

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 has directed all the banks not to charge prepayment penalty on home loans that are on floating interest rate basis. For fixed rate home loans, however, there is a prepayment penalty charged at a flat rate, which is typically around 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 a floating rate of interest is more feasible for you.
Commitment fee
Some institutions levy a commitment fee in case the loan is not availed within a stipulated period of time after it is processed and sanctioned. It is the fee charged by a lender to a borrower for an undisbursed loan. For example, in case of a construction linked loan, the project completion stages are crucial for disbursal. The lender keeps this line of credit open for you but charges a specific amount so that you can avail it in the future.This fee is typically charged as a percentage of the difference, between amount sanctioned and amount disbursed.

(Rajiv Raj is the Director and Co-Founder of www.creditvidya.com)

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