While availing home loans, rate of interest should not be the only criteria. There are other various charges to be looked into at the time of choosing a home loan. These other charges make an impact on the total cost of the loan. A borrower can negotiate on many of these charges depending on the loan amount, tenure and his/her credibility.
The borrower should analyse the following charges before making a decision for availing home loan :
1. Processing Fee – Processing fee is payable at the time of submission of the loan application. This fee is non refundable and is charged for processing the loan application of the prospective borrower. This fee varies from 0.50% to 1% of the loan amount applied for.
2. File and Legal Charges – Some banks charge this amount to the borrower. Legal charge pertains to the legal evaluation of the documents.
3. Commitment Charges – This charge is payable if the loan is not availed within a specified period of time after sanction.
4. Administration Fee – This fee is payable on the acceptance of offer i.e. once the loan has been sanctioned. This amount is the same as the processing fee – i.e. 0.50% to 1% of the loan amount sanctioned. Some banks charge both Administration Fee and Processing Fee.
5. Change of Mode of Interest – When the borrower intends to switchover from a floating rate to a fixed rate or vice versa, he is required to pay an amount to the bank/financial company.
6. Insurance – Some banks stipulate the insurance of the house for which loan has been considered or the borrower should take a life insurance policy for the sum equal to the loan amount. In case of eventuality, the insurance claim will be utilized to clear the outstanding liability in loan account.