subject: Some Charges While Taking a Housing Loan [print this page] Some Charges While Taking a Housing Loan Some Charges While Taking a Housing Loan
While taking a housing loan, there are a number of charges that a borrower has to bear. A borrower must get all the details of these charges from the bank, before applying for a housing loan. Some of the charges are:
Processing Fee
Administrative Fee
Commencement of EMI
Prepayment charge
Switchover Charge
Late Payment Charge
Commitment Charge
Insurance
Processing Fee: Processing fee is non-refundable and is to be paid while filing the loan application. The processing fee is charged to cover the cost of determining the loan eligibility of the borrower. Normally, the processing fee varies from 0.5% to 1% of the amount applied for loan. Some banks also charge the legal fee separately in addition to the processing fee. Administrative Fee: Once the loan has been sanctioned, the borrower has to pay the administrative fee. This fee also varies from 0.5% to 1% of the sanctioned amount. In some banks, both the processing fee and the administrative fee will be charged together. Few banks also charge an amount as file charge. Commencement of EMI Normally, the EMIs start from the month of final disbursement of loan amount. In some other cases, it may also start from the month following that. A borrower must decide this, depending upon his cash flow. This timing of commencement of EMIs has to be decided carefully by the borrower since it has an impact on the total interest cost of the borrower over the period of the loan. Prepayment charge Some banks charge penalty if the loan is repaid before the agreed duration. This penalty is charged because the bank thinks that it disturbs the cash flow and income estimates of the bank. This prepayment penalty may vary from 1% to 5% of the outstanding loan amount. Some banks do not charge this kind of penalty. Switchover charge A person may plan to switch over from one bank to another, if the other bank is offering better terms. In this case, the bank will charge a penalty. This charge may not be payable if the loan is repaid out of one's own funds. Late payment charge This charge is levied if the borrower delays to pay the EMI before the due date. Commitment charge If the borrower does not uses the loan amount within a specified period of time after which the loan is sanction, then the bank charges a commitment charge to the borrower. Insurance Some banks require that the house should be insured or the borrower should take a life insurance policy where the sum assured is at least equal to the sanctioned loan amount. Some banks also offer free insurance to the borrower. The borrower's family will not be affected financially because of the loan liability, if the borrower dies unfortunately. This insurance amount will be used to repay the loan amount to the bank.
