Hidden Charges That You Should Know Before Applying For a Housing Loan

Building a home is quite a huge investment. You’ve probably put in a lot of thought and planning before deciding upon a home in a particular location or locality.


A home is a long term investment. You shouldn’t compromise on it. The same could be said of the Home Loan.

The Need for a Home Loan

Most of us tend to opt for a Home Loan when purchasing a home. First off, it is difficult to save enough funds to finance the purchase of your home, all by yourself. With the real estate market in the condition it is in today, would make most of us think twice before we shell out our savings on a home.

You’re also probably aware of the various Home Loan charges that will follow you around. Take some time to explore these Home Loan options. You’ll see that these vary in terms of interest rates, tenure, and the Housing Loan eligibility criteria.

These factors vary from lenders to lender, but follow a general framework. Besides that, there are a few charges you should be aware of before opting for a Home Loan. These are crucial bits of information to those seeking Home Loans.

What you’ll Need to Keep in Mind

Interest rates aren’t the only charge you should keep your eye on when selecting a Home Loan scheme. Here are a few other charges you might unknowingly incur on a Home Loan;

  • Prepayment Charges

You’ve probably heard that you have the option to make prepayments, but you must read your scheme carefully to see the charges levied for the same. You didn’t think that you could make prepayments without an additional charge, did you?

This is a charge that is levied on you, simply if and when you pay the entirety of the loan amount or even a part of it before the due date. This cost is simply in lieu of all the interest the bank/NBFC/lender will lose as income. So in a way this charge serves as a prepayment penalty on the borrower, to make up for the loss. But keep in mind that this charge only applies on a loan sanctioned on a fixed rate of interest, and not floating. So, this is where you make the decision of what kind of interest rate you’d like to have.

Your lender will decide how much of a penalty they would like to charge, however it’s ideally around 2% of the total loan.

  • Late Payment Charges

Lenders and banks are also likely to charge a fee if you’re late with your EMI payments. There is a fee charged for any default from your side. This is why it’s important to choose a lender/bank that will take care of your needs and be understanding. You have to keep in mind the amount of this charge, because it can go up to 24% of your total loan amount per annum.

Use this as an incentive to make sure your payments are made on time.

  • Charges for Switching

You will often find that many lenders and banks give you the option to convert your fixed interest rate Home Loan to an easy floating interest rate Home Loan, and vice versa.

If you’re lucky, you probably also get the option to reduce your rate of interest to an existing lower rate. But obviously, they charge you a conversion fee for converting your account. You will be charged anywhere between 1 to 2% of your existing loan amount as conversion fee.


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