Take a mortgage? There is more to pay than just an interest rate
At present, the interest rates on home loans are low and many borrowers may consider taking out such a loan to take advantage of the lower rates. Most of us focus only on the interest rates offered. However, there are other charges that apply to home loans, which increase the overall cost of taking out such a loan. Here is an overview of the main costs associated with a home loan, including interest.
Interest charged on a loan is the amount a lender charges a borrower and is a percentage of the principal.
Here is what some of the major lenders in India charge as the interest rate. These rates are indicative and will change depending on the details of the loan seekers such as type and location of work, loan amount, age, number of applicants, etc. There may also be special offers going on.
India’s largest public sector bank, State Bank of India (SBI), currently charges interest rates between 6.90% (loan amount up to Rs 30 lakh) and 7.00% (above Rs 30 lakh).
HDFC charges 6.70% (up to Rs 30 lakh). But for loan amounts over Rs 35 lakh, the interest rate varies but the general rate starts at 7 percent per annum.
The Punjab National Bank (PNB) offers 6.95% (up to Rs 30 lakh) and 7.20% (Rs 35 lakh and more).
Axis Bank’s interest rates vary for the self-employed and employees. For the former it is 7.95-8.55% per annum, and for the latter the rates are 6.90-8.40% per annum, according to Bankbazaar.com.
All loan applications go through a credit underwriting process with the lender. During this process, the details of the applicants are checked for parameters like the creditworthiness of the applicants, the legal status of the property, etc. It involves manpower and resources, so the lender charges a processing fee, which includes all costs associated with the underwriting process.
Different banks charge different processing fees. For example, SBI charges 1% of the loan amount, but a minimum of Rs 1,000 and a maximum of Rs 10,000. HDFC borrowers must pay up to 0.5% of the loan amount or Rs 3,000, depending on the highest amount. GNP charges up to 0.35%, but a minimum of Rs 2,500 and a maximum of Rs 15,000, according to bankbazaar.com.
Sometimes lenders may waive processing fees to attract borrowers. It should be noted that the processing fees are not a guarantee of the approval of the loan application.
A Property Deed Deposit Memorandum, or MOTD, is a document signed by the applicant indicating that the property has been pledged to the bank as per the client’s wishes in order to acquire a home loan. Essentially, this means that you will get full ownership of your home or property that you have taken out the loan for when you have paid off the lender.
This document requires a stamp duty, which differs by state. Usually it is between 0.1% and 0.2% of the final loan amount.
Transferring an existing home loan to another lender usually incurs a conversion fee. Home loans are a competitive market and you can find a lender with more attractive rates than your current lender. Hence, you may decide to transfer your loan for more competitive and affordable interest rates. For example, SBI charges a conversion fee of 0.50%, according to Paisabazaar.com. Bank of Baroda conversion fees are 0.50% of the principal outstanding + taxes, but a maximum of Rs 25,000.
Prepayment options are available on most home loans, allowing you to pay off the loan before the end of its full term. You have the option of making partial prepayments or repaying the entire mortgage. Most lenders do not have any type of prepayment charge. However, for some fixed rate loans, there may be prepayment or pre-closing charges. Before taking out a home loan, be sure to get details on the prepayment rules. There may also be a limit on the amount you can prepay.
This applies to any legal document that represents a transaction between the borrower and the lender and requires signatures on stamp paper. The stamp duty depends on the actual expenses incurred.