When applying for a loan against property, it’s essential to know about the interest rate as well as all the fees and charges involved. Typically, a loan against property interest rate can either be a fixed rate or a floating rate. A fixed interest rate is an interest rate that remains constant throughout your loan tenure and is attached to the property that you are mortgaging. Conversely, a floating interest rate changes throughout the tenure of the loan depending on the market conditions and interest rate. Both these types of interest rates have their pros and cons. With a fixed interest rate, you know exactly what your cost of borrowing is going to be. On the other hand, with a floating interest rate, you could benefit when the market interest rates drop but also have to pay more when the interest rates rise.
In addition to the loan against property interest rate, here are some charges that are involved that you should know about:
1. Processing fees
When you apply for a loan against property, the bank will charge you a one-time fee called processing fees. This fee is to cover all the administrative costs and expenses the bank bears while processing your loan application such as assessing your property’s value, etc. Loan processing fee is usually between 0.5% and 2% of the loan amount plus GST.
2. Legal charges
The bank needs to go through all the legal documents related to the property that you are mortgaging when applying for a loan. Hence, it levies legal charges for verifying and assessing these documents and ensuring that everything is in place. This also involves assessing your creditworthiness. The legal charges for a loan against property can be anywhere between Rs 5,000 and Rs 10,000, depending on the lender.
3. Penalty charged
Your loan against property tenure typically lasts over years and it is possible that at some point you may have insufficient funds to meet your Equated Monthly Installment (EMI) obligation. In such a case, the lender charges a penalty charge of about 2% per month, though this rate can differ from lender to lender. It is hence essential to opt for an EMI amount that you can easily pay regularly and avoid penalty charges.
4. Foreclosure charge
In case you decide to repay the entire loan and close the loan before its tenure ends, the lender will charge you a fee in the form of foreclosure charges. The foreclosure charges depend upon your loan amount, tenure, how many EMIs you have paid, at what point in your tenure you are prepaying the loan, etc.
In addition to these charges, your bank can also charge fees such as loan rescheduling charges, EMI bouncing charges, loan statement issue charges, etc. It’s best that you clarify all the charges and fees involved with the bank before you apply for a loan against property. Such charges and fees, in addition to the loan against property interest rate, determine your overall borrowing cost.