When applying for a loan against property, knowing the interest rate and all the fees involved is essential. 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 loan tenure 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 will be. On the other hand, with a floating interest rate, you could benefit when the market interest rates drop and 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 processing fee. This fee covers all the bank’s administrative costs and expenses while processing your loan application, such as assessing your property’s value. The loan processing fee is usually between 0.5% and 2% of the loan amount plus GST.
2. Legal charges
The bank needs to review all the legal documents related to the property you are mortgaging when applying for a loan. Hence, it levies legal charges for verifying and assessing these documents and ensuring everything is in place. This also involves assessing your creditworthiness. The legal expenses for a loan against property can be between Rs 5,000 and Rs 10,000, depending on the lender.
3. Penalty charged
Your loan against property tenure typically lasts over the 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. Hence, opting for an EMI amount that you can quickly pay regularly and avoid penalty charges is essential.
4. Foreclosure charge
If you decide to repay the entire loan and close it before its tenure ends, the lender will charge you a fee in foreclosure charges. The foreclosure charges depend upon your loan amount, term, how many EMIs you have paid, what point in your assignment you are prepaying the loan, etc.
In addition to these charges, your bank can charge fees such as loan rescheduling charges, EMI bouncing charges, loan statement issue charges, etc. In addition to the loan against property interest rate, such changes determine your overall borrowing cost. You should clarify all the costs and fees involved with the bank before applying for a loan against the property.