Are you buying a new home? Congratulations! You must now be in the process of researching the best home loan options available on the market. You might also be planning your finances based on home loan interest rates and loan repayment tenures. But what about the rest of the charges?
Yes, there are additional charges that you need to consider before applying for a home loan. So, when you calculate the total cost of your loan, you must add them as well. Knowing these overhead charges beforehand will help you plan your finances better and remain stress-free throughout your loan process.
To help you stay prepared, here is a list of seven essential overhead charges you should know before applying for a home loan.
Seven overhead charges for home loans you should know about
#1 Processing fee
This is a fee most financial lenders levy on borrowers during the loan application process. The amount goes toward the verification of documents and other loan-related formalities. Hence, you need to pay the fee irrespective of whether your loan gets sanctioned.
Keep in mind that it is a non-refundable fee. And although it depends on your profile, income, and loan type, the overall charges typically range between 0.5 to 2% in most financial institutions.
#2 Stamp duty charges
This overhead charge applies to all legal documents related to your loan. You will be levied a stamp duty tax which varies from state to state, and the costs depend on the home loan value.
For instance, if you apply for a loan in Chennai while buying the house in Hyderabad, you will incur a stamp duty for the property as per the rates in Hyderabad, which is 4%, and stamp duty for the home loan agreement, according to Chennai rates.
So, check the percentage of these charges, especially if you’re purchasing in another state. You can use a stamp duty calculator to make this process easier.
#3 Delayed payment charges
Failing to pay your monthly home loan installments on time will lead to huge penalties. Moreover, it can severely damage your credit score. Eventually, this will harm your future dealings with any financial institutions.
So, it is advisable to pay all EMIs (Equated Monthly Instalments) on time to avoid any overhead charges. Though the amount varies among financial institutions, around 2% is charged on the prevailing interest rate for the delay duration. Most lenders have an auto-debit system that makes your EMI payment, but you need to maintain sufficient funds. Otherwise, you incur charges if the payment bounces.
#4 Home loan insurance
These are voluntarily borne overhead charges. A home loan insurance guards you against the risk of defaulting on the loan or the inability to make the repayment in case of death. Most lenders club your loan amount with insurance charges in your EMI itself. For example, if your loan amount is Rs.25 lakhs and the insurance premium is Rs.75000, your EMIs would be calculated on Rs. 25,75,000.
#5 Legal charges
Most financial institutions partner with third-party legal firms to create all home loan-related documents. This includes drawing up legal agreements between the borrower, the builder, and themselves. And so, legal charges are levied on the borrowers based on the total legal fee they incur.
#6 Foreclosure charges
Foreclosure, also known as pre-payment or pre-closure, is the repayment of your total outstanding loan amount in a lump sum instead of installments. Foreclosure rules vary from lender to lender. For instance, some financial institutions like Tata Capital do not levy a foreclosure fee if the repayment is made with your funds instead of using someone else’s. Also, most financial lenders charge nothing if you opt for floating rate loans instead of fixed.
#7 Other charges
Apart from the above, applying for a home loan involves other additional charges such as documentation fees, account maintenance charges, dishonor of cheque charges, technical evaluation fees, etcetera. CERSAI charges may also apply depending on your loan situation to ensure the same asset is not used for multiple loans.
To sum up
A home loan is a great responsibility as it is a long-term financial commitment. Hence, consider all the above overhead charges for home loans while planning your finances and make informed financial choices.
For easy housing finance, consider applying for a loan with Tata Capital. Enjoy benefits like quick disbursal, flexible EMIs, and minimal documentation. Visit our website to learn about our attractive home loan interest rates and check your home loan eligibility.