Applying For A Home Loan? 6 Charges You Should Be Aware Of
When you are applying for a home loan, it is not just the interest rates which is to be compared and calculated. There are scores of other types of fee and costs that an applicant has to pay irrespective of your home loan approval status. Therefore, it is always advisable for borrowers to compare additional charges such as processing fee, administration charges, conversion charges etc. apart from interest rates before applying for home loan with a specific bank. It makes financial sense to take a decision considering all home loan overheads.
MakaaniQ lists the top six charges that you must be familiar with before applying for a home loan.
Processing Fee (PF)
“Processing Fee” is the fee charged for obtaining documents for the purpose of home loan appraisal and underwriting. The PF all banks and financial institutions is comparable. Review the PF carefully because it, at times, does not include some costs of home loan application processing. These additional charges are later charged over and above the processing fee. Also, note that PF is not refundable, even if your home loan application is not approved. In some exceptional cases, lenders waive off the PF, especially when they do not want to lose the customer. The processing fee varies from lender to lender, and generally ranges from 0.50 to 1.00 per cent of the home loan amount.
CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) Fee
The CERSAI is a central online mortgage registry of India. CERSAI was established to inspect mortgage frauds in which people take multiple loans against the same asset from different banks. It provides the platform for filing registration of transactions of securitisation, asset reconstruction and security interest of banks and financial institutions. Lenders can access the registry of property/asset by paying a fee that they recover from the borrower as the CERSAI. The CERSAI charge has to be paid regardless of whether the loan is sanctioned or not.
Some lenders charge administration fees. This is not included in the processing fee, and is non-refundable. These charges mostly include the legal and technical verification charges. All banks and financial institutions have an outsourced agency (or an empaneled valuator) that checks the legal and technical viability of the property/asset, and prepares a report on it. This report is used to decide whether to sanction the home loan.
The agency charges money from the bank based on the report generated. This is levied as a fee from the home loan applicant.
Late Payment Charges
As the name suggests, late payment charge is the penalty you have to pay if you delay paying home loan Equated Monthly Instalments (EMI). Be careful not to skip/ delay the monthly instalment even through negligence, because you will be expected to pay a hefty penalty, which is as high as 2 per cent of the overdue monthly instalment.
When interest rates fall, the home loan applicant should convert to the lower interest bracket by paying a fee called “conversion fee”. Higher the spread between the new interest rate and the old interest rate, higher is the conversion fee that needs to be paid to the bank. This also lowers the home loan tenure. Many borrowers prefer switching to a new lender as soon as the interest rates decline in order to avoid paying the conversion fee. But this step must make the economic sense because the new lender will also charge processing fee to appraise your outstanding home loan amount (this is, at times, waived off in certain cases).
This is one of the clauses you must read carefully in the home loan agreement. Many lenders charge pre-payment fee and many do not charge pre-payment fee (for floating rate home loans). When the home loan borrower pre-pays his home loan (either in full or in part), before the defined home loan tenure, a pre-payment penalty is charged. The borrower must compare this penalty amount against the overall interest that he/she will save in terms of interest. If this makes financial sense, then pre-paying a home loan is a good option. If not, it is better to invest the money in avenues that give better returns or interest, and use such income to pay off your home loan.
Please Note: Make sure that you understand all the provisions and clauses governing these additional charges in the home loan agreement. Talk to your credit officer about them in some detail.
Also watch: Six types of home loan charges