Navigating Charges Associated with Home Loans and Loan Against Property – Part 2 of 2
Securing a home loan or a loan against property, whether initiating a new loan or transferring the balance from an existing one, involves a multitude of charges. While borrowers typically focus on interest rates, tenure, and EMIs, these charges often escape attention. These overlooked fees can significantly impact a borrowers total expenditure, particularly at the loans inception.
This is the second article of a two-part series, shedding light on the charges tied to balance transfers from existing loans. If you would like to read the first part focused on new loans only, then check out the link
If you have an existing loan with a history of paid EMIs, you might be eligible to transfer the unpaid balance to a new lending institution. Borrowers opt for balance transfers when another institution offers more favorable terms, there is a shift in the interest rate cycle, or dissatisfaction with the existing lenders services.
Following fees are applicable in the case of balance transfer on existing loans:
- Application fees or Login fees
- Processing fees
- Insurance
- Stamp duty or other state-specific charges
In addition to the above fees, the following fees & charges are specifically applicable for balance transfer cases:
Foreclosure charges on existing loan
In the case of existing home loan on floating interest rates, the borrower is not expected to pay any foreclose penalty or charge on closing an existing loan with the lender, as per the RBI Monetary Policy Statement 2012-13 announced on April 17, 2012
In the case of existing home loan on fixed interest rates or loan against property, foreclosure charges vary among lenders and typically involve a percentage of the outstanding loan amount. Upon completion of the foreclosure process, the bank issues a foreclosure letter and a no-dues certificate, providing formal closure documentation for the borrower.
Typical foreclosure penalty, if applicable: 3-5% of pending principal amount
Part-payment charges on existing loan
Often customers prefer to transfer a specific balance from their existing institution to the new institution. In such cases, they can pay off some part of the principal owned in their existing loan through pre-payment or part-payment
Some lending institutions charge customers on pre-payment, while other institutions have an upper limit of the total principal that can be pre-paid in any year.
In the case of existing home loan on floating interest rates, the borrower is not expected to pay any pre-payment penalty or charge, as per the RBI Monetary Policy Statement 2012-13 announced on April 7, 2012
In the case of existing home loan on fixed interest rates or loan against property, pre-payment charges vary among lenders and typically involve a percentage of the pre-payment amount.
Typical pre-payment penalty, if applicable: 0.5-2% of pre-payment amount
What should NOT be charged and NOT part of your loan fees:
This is the second article of a two-part series, shedding light on the charges you can avoid when thinking of balance transfer of existing loans.
In the first article of a two-part series , we highlighted how borrowers should not be paying
- Cash payment to intermediaries
- Professional fees for paper pushing to intermediaries.
In general, Intermediaries often have incentives to steer borrowers toward a balance transfer to a new loan, as they receive remuneration from the new bank for each transaction without incurring any costs themselves. It is crucial to stick with your existing loan unless there are compelling reasons to switch, such as preferential terms or a significant difference in interest rates. Making an informed decision will ensure you avoid unnecessary fees and make the most of your financial arrangements.
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We, at Creditnama, have one goal – to get you the best possible deal on your home loan or loan against property in the shortest possible turnaround time.
We do not charge you, the loan seeker, anything. We get paid from a lending institution when you choose your deal and get the loan disbursed into your account.
Thus, our incentives are aligned with yours, every step of the way.
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