GURUMURTHY K | July 13, 2014 |THE HINDU BusinessLine
Besides looking at interest rates, take stock of the other charges levied by lenders to find the best deal
Interest rates on home loans are the major differentiator between institutions that provide loans, no doubt. But there are other costs and fees involved during the process of taking a home loan.
A clear understanding and comparison of these costs can help you choose between two loan providers offering similar interest rates.
Mortgage deed charge
The mortgage deed charge (MOD) is a major charge among the various fees you have to cough up while taking a home loan. In general, most institutions charge 0.5 per cent of the loan amount as an MOD charge. So for a ₹50-lakh loan amount, the MOD charge will be ₹25,000.
Some institutions market their home loan products by waiving this charge. A good saving? Beware, there is no such thing as a free lunch. There could be some hidden fees through which the institution will compensate for the waiver of this charge.
For example, LIC Housing Finance does not charge an MOD. But it has much higher floating interest rate when compared to other loan providers. The floating interest rate it offers currently is over 11 per cent (for the first two years, the interest rate is fixed at 10.1 per cent) for home loans, which is much higher than most other institutions.
Loan applications are subject to processing, such as verification of documents, before being sanctioned. A fee is charged for this process by all institutions.
State Bank of India charges 0.25 per of the loan amount as a processing fee for loans up to ₹25 lakh and a fixed amount of ₹6,500 for loans above ₹25 lakh and up to ₹75 lakh.
On the other hand, in the case of a loan taken from Housing Development Finance Corporation (HDFC), the processing fee charged is up to 0.5 per cent of the loan amount.
At ICICI Bank, the fee is relatively higher, at 0.5 per cent to 1 per cent of the loan amount. So, with an equal 10.15 per cent interest rate currently, SBI scores over ICICI Bank on this front.
Some institutions may waive this processing fee. But such a waiver might only be secured after tough negotiations.
In order to verify the legal status of the property that has been bought and for which the loan is sought, institutions appoint external lawyers.
The fees for lawyers, too, are taken from the customer. However, if the property you are buying is approved in advance by any institution, this fee is not applicable.
For instance, ICICI Bank and HDFC do not charge a legal fee if any project has been approved by them.
Besides these major charges, there are others as well.
These include registration fee, stamp duty and documentation charge.
Get details of all applicable charges on a home loan from different institutions. Along with this, ask for the amortisation schedule. This table will detail your equated monthly instalments (EMI) and give a break-up of each month’s EMI between the principal and interest.
For example, suppose you are taking a ₹50-lakh loan for a period of 20 years at an interest rate of 10.25 per cent.
In this case, your EMI will be approximately ₹49,000.
In the first month, about ₹6,300 will go toward the principal component and the remaining ₹42,700 will be your interest component.
As the loan period progresses, the principal component will increase gradually while the interest component decreases.
Summing up all the EMIs for the entire loan tenure will give the amount you will have to repay at the current interest rate.
Now, sum up all the charges along with the EMI outflows to arrive at the total amount you will be paying at the current interest rate. Compare this amount across different institutions and go for the one that is the lowest.
Remember though, the final value of your loan might differ from your calculation, as the interest rate varies over time.
Source : http://goo.gl/h3Ozxy