Home buying is an exciting milestone in most of our lives, and to achieve this, home loans have become a coveted financing tool. To make it more attractive for prospective home buyers, recent home loan rates have been as competitive as market conditions allow, making it more feasible for aspiring applicants to borrow and repay the home loan of their choice and buy their dream property without any compromises.
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However, to ensure that your home loan application and repayment process stays seamless and hassle-free, research is of utmost importance. Just as lenders should practice transparency when sanctioning home loans, borrowers should also acquaint themselves with every aspect of the home loan process, including the fees and charges attached to it.
Staying informed not only helps you manage your expectations, but it also helps you better prepare for your home loan application, boosting your chances of speedy approval with a loan sanction that addresses your home buying needs.
In this article, you will find all the possible charges that applicants have to bear during the home loan application process and the charges they may have to pay at the time of loan repayment.
Home Loan Application Process: Fees and Charges
Let us first look at the mandatory charges aspiring borrowers are expected to pay, to complete their home loan application process:
1. Home Loan Processing Fee
The home loan processing fee is borne by the applicant as the cost of the lender processing their home loan application. Once a lender receives your application, they implement a thorough verification process, for which the fee is charged. It could either be a flat fee or a percentage of the home loan sanction requested, depending on the discretion of the lender.
Note that paying the processing fee does not guarantee a successful loan sanction, and even if your loan application is rejected, the fee will not be reimbursed.
2. Home Loan Administration Fee
While the home loan processing fee is a staple across lending institutions, the home loan administration fee is only levied by some. It is an additional cost, often seen as a variant of the processing fee, that is charged before the loan amount is disbursed into the borrower’s account.
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3. Technical and Legal Assessment Fees
The technical and legal assessment of the property you want to purchase is also a part of the home loan application verification, which warrants a separate fee. Lenders insist on the assessment to verify the property’s legal status and market value. To assist in this, lenders hire legal and technical experts, and the cost for this is borne by the home loan borrower.
Apart from these, home buyers also have to account for the down payment amount, stamp duty and property registration charges on their new property. While these are technically not charges on a home loan, one must still plan for these, as this could size up to a sizeable amount.
Home Loan Repayment: Fees and Charges
Once your home loan is approved and disbursed, your repayment process is subject to a variety of fees. Here are a few that may be applicable to you.
1. Home Loan Interest
It goes without saying that if your home loan is sanctioned, you will have to pay interest on the principal loan sum. The home loan interest is essentially the cost of borrowing the loan, and is a percentage compounded annually upon your principal loan sum.
2. Part-Prepayment and Foreclosure Charges
If you wish to make part-prepayments above your EMI payments or even foreclose the loan account ahead of time, you may have to pay an additional fee. However, note that this is only true for non-individual borrowers and borrowers with a fixed interest rate home loan. The Reserve Bank of India mandates that individuals with a floating interest rate home loan be allowed to make prepayments or foreclose their home loans at zero additional costs.
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3. Penal Interest Charges
A penal interest is charged if you default on your loan payment or pay your EMIs after the fixed EMI schedule. It could amount up to 2% for every month you delay or default on your payments, above your ongoing EMIs.
4. EMI Bounce Charges
EMI cheques bouncing can have serious consequences, and lenders levy a stringent EMI bounce fee on borrowers whose cheques don’t come through. This amount could go up to Rs. 3000, and the lender can also initiate legal action against you under Section 138 of the Negotiable Instruments Act if it is a repeated offense.
Aspiring home loan borrowers are advised to account for all the possible charges they may have to bear before applying for the home loan. Consider saving in advance to fund the nominal charges and the down payment, so the cost of borrowing the loan and buying the property does not jeopardise your financial stability.