If you wish to purchase a property by taking on a home loan, you can either approach a bank or a home loan company. While both entities can provide the necessary finance to help you buy your dream house, there are several benefits of approaching the latter with your loan application. HFCs are quite flexible when it comes to approving these loans and loan amounts are also disbursed rather quickly. However, to ensure that your loan is passed without any delays, you must provide all the documents and pay the necessary charges. Here are all the 4 basic types of home loan charges levied by HFCs.
- Loan processing fees
All lenders, including housing finance companies levy a loan processing fee. A processing fee is charged in lieu of the necessary approval and disbursal formalities associated with the loan. This is a mandatory, non-refundable fee and you cannot get back this amount, even if your loan is rejected for any reason or if you decide not to proceed with the loan after paying the fee. HFCs charge either a fixed loan processing fee or an amount equal to 0.50% or 1.00% of the total sanctioned loan amount.
- Administrative fees
This is another non-refundable fee levied by housing finance companies in India. Lenders need to verify the documents provided by you and evaluate the property you wish to purchase through the loan – whether there are any disputes and if all property documents are in order. HFC lenders have to pay agents for evaluating the property and creating a report on it. This fee is collected by the HFC from the borrower in the form of administrative fees.
- Interest rate conversion fee
Home finance companies allow you to change your interest rate in the mid of the loan repayment tenure. As such, you can reduce your existing home loan interest rate and pay the rates as per current market prices. You can do this by paying a simple conversion fee. The fee paid depends on the difference between the existing and the new interest rate. If the difference between the two rates is higher, you would have to bear a higher conversion fee. The loan tenure may also reduce if you use this option. That said, this charge is applicable only if you opt to change your home loan interest rate.
- Home loan Prepayment charges
Both, home loan and mortgage loan companies levy a certain charge if you decide to prepay your loan and become debt-free before the stipulated tenure. This charge is known as a home loan prepayment charge. The terms and charges associated with home loan prepayment are typically mentioned in your loan agreement document. As per RBI regulations, these charges are not applicable if your opt for home loans with floating interest rates but you have to pay them in case of fixed interest home loans. That said; you must consider various factors before opting for prepayment and see if it is worth bearing the prepayment penalty. Check if opting for prepayment is truly worth it and if it will actually reduce the cost of your home loan.
Final word: Before you send out your home loan application, you must calculate the total cost of your loan with the help of a home loan EMI calculator. You must consider these charges levied by housing finance companies while using the EMI calculator. The calculator helps you understand both, the actual cost of the loan against different scenarios as well as the EMI payable against a particular interest rate and tenure, against the principal amount borrowed.