Types of Home Loan Charges

A housing loan is one of the most common means of securing your own home. Through a combination of competitive rates, long repayment periods and higher borrowing limits, one can finally secure their dream home. While most people who take out a loan are well aware of the interest rates and amounts due, a smart borrower makes the effort to understand all the different types of home loan charges, whether big or small. This is important, especially while doing your due diligence, to choose the right lender to borrow from so that no hidden costs are discovered after the loan has been secured. In the next section, we take a look at some of the most common housing loan charges that you should be mindful of.

Types of Home Loan Charges

• Housing Loan Processing Fee

  Possibly the most important and obvious home loan charge is the Processing Fee. Some lending institutions might also refer to it as an Administrative Fee. It is usually a percentage of the entire loan amount, which is to be paid upfront for the administrative activities involved in procuring and verifying your loan-related documentation. It is worth noting that many banks and non-banking financial companies (NBFC) deem the Processing Fee as non-refundable. This implies that even if the loan gets rejected, the fee will not be returned. So, while choosing the right lender, keep this in your consideration.

• Administrative charges

  While many financial institutions cover all administrative aspects under the umbrella of the Processing Fee, some others may segregate the two. In such cases, the Administrative Charges may be levied, which typically include the cost of verification of the property being considered for the loan. This may involve site visits, structural inspection, legal verification, etc. Most of the time, such work is outsourced or subcontracted to specialized agencies. Hence, this can be considered as pass-through cost. Some lenders might also apply a Login or Application Fee. This may be non-refundable or deducted from the overall charges on housing loan approval. Understanding the break-up and composition of processing and administrative fees is advisable while choosing your housing loan provider.

• Payment Charges

  There are, typically, three kinds of charges that can fall under the Payment Charges bucket.
  
  
  1. Prepayment Charges: This type of home loan charge is also known as Foreclosure Charge or Pre Closure Charge. It is applicable if you pay off the full remaining housing loan before the end of the agreed upon tenure. There may be times when you would feel you have the financial capacity to repay the entire loan earlier than the original tenure and save on the subsequent interest. However, you should clearly understand the Prepayment Charges and then decide whether it is in your best interest to do so.
  2. Late Payment Charges: As the term implies, the Late Payment Charges are incurred when your monthly instalment payment (EMI) is delayed for any reason. To deter people from missing timely payments, the lending institutions levy fairly high penalties, ranging from 2% - 3% each month until the EMIs are paid up and synchronization of payment calendar is regained.
  3. Partial Prepayment Charges: While most floating-interest rate loans do not factor this in, you need to know if your particular loan scheme involves such charges. In the case you choose to clear a partial amount of your pending loan balance, you may incur the Partial Prepayment Charges. This will apply each time to make a partial payment and can pile up to a high additional cost.

• Conversion Charges

  Some lenders might refer to it as a Switching Fee. It is levied when you wish to convert or switch from an existing rate scheme to another one. The most common examples include switching from a fixed rate to a floating rate interest scheme or vice versa. Sometimes, this conversion may also result in an alteration of the overall loan tenure.

In Summation

As is evident, there are several charges involved in the process of securing a housing loan. While some of them have been listed above, there may be more that needs to be considered and compared before you choose the ideal lender to help you secure your dream home.