If you’re keen on purchasing a house, now is a good time as home loan rates are at an all-time low. Even when combined with other charges, such as home loan processing fees, these loans have become significantly less expensive due to the repo rate cuts in 2020.
- India’s home loan market is expected to record a growth rate of 22% between the years 2021 and 2026, with affordable mortgage rates as one of the acute triggers
- The last repo rate cut announced by the RBI brought these rates at a 7-year low, prompting a reduction in home loan rates
Repo rate is one of the external benchmarks widely adopted by lenders, bringing in the RLLR-based lending system for home loans. While this has brought in a welcoming change for prospective borrowers, one must be aware of the other fees levied by lenders to estimate the total repayment liability better and assess affordability.
6 types of charges on home loans
- Interest rate
Interest rate is one of the most significant charges levied by a lender and covers the cost borne by financial institutions in lending money for a specific duration. The risk undertaken by a lender in extending finance is one of the primary factors that impact your home loan interest rate.
As the lending rate margin varies from one lender to another, one must make an interest rate comparison before sending a home loan application to a given lender. Further, you can assess your borrowing affordability with the help of a home loan calculator available online. Only provide the loan amount, tenor, and applicable interest rate to check the EMI value. Some calculators also reflect the total interest payable, allowing individuals to make an informed borrowing decision.
Before opting for a home loan, one must also know how to choose between floating and fixed interest rates for improved repayment affordability over the tenor.
- Home loan processing fees
Home loan processing fee is another mandatory charge a borrower needs to pay when availing the advance. It is charged as a fixed percentage of the total loan amount applied for and is set at a nominal rate between 1% and 2%. The charge primarily includes costs related to administrative expenses such as application examination and document verification. It also covers charges related to the printing and posting of loan statements.
It is smart to look for a lender providing these loan statements online to ensure that the charges are kept at a minimum. Applicants need to pay this processing fee to initiate the home loan procedure in India; only once the home loan application fee is paid does the financial institution evaluate an application.
- Secure fee
Like a home loan processing fee, a security fee is also an essential charge lenders levy by providing online services. It is a one-time, non-refundable fee charged towards providing a secured online service, such as digital account maintenance and maintaining secure transactions.
- Penal interest
Penal interest is a variable charge levied only in case of defaults in EMI payment or any part of the loan amount due for repayment. It is charged as a percentage of the amount defaulted on and is chargeable on a per-month basis until the borrower pays the unpaid amount.
With some of the best lenders, the penalty charge is kept at as low as 2% of the amount on default. It is best to make timely payment of your EMIs to eliminate the levy of penal interest on your loan.
- EMI bounce charges
EMI bounce charge is another variable fee charged in case a cheque deposited towards EMI payment bounces. To avoid such charges, it is best to keep sufficient funds in your account prior to the monthly due date for hassle-free payment of your monthly home loan instalments.
- Prepayment fees
Prepayment charges include foreclosure and part-prepayment costs. These fees are levied only if a borrower opts for either of the prepayment facilities. Nevertheless, they are not applicable if a home loan is obtained at a floating rate.
Along with assessing these charges, individuals must also evaluate their eligibility with a home loan eligibility calculator and apply for an amount accordingly.
Leading NBFCs also bring pre-approved offers to make financing hassle-free and less time-consuming. These offers are available on a range of financial products, including loans against property and home loans. You can check your pre-approved offer by providing your name and contact number.
These NBFCs also keep charges such as home loan processing fee at a minimum, improving borrower affordability. When applying for the advance, individuals can also look for other available features, such as hassle-free balance transfer facility and top-up advance, to ensure benefit maximisation. Also, check the RBI guidelines for home loans to ensure a maximum cap on the advance and apply accordingly.