Taking a home loan has costs beyond just the interest rates. One also needs to look at the processing fee, conversion charges and stamp duty. Some of these are negotiable.
At present, the interest rates on home loans are on the lower side and many borrowers may be considering taking such a loan to take advantage of the lower rates. Most of us focus solely on the interest rates that that are on offer. However, there are other charges that apply to home loans, and which increase the overall cost of taking such a loan. Here's a look at the main costs attached to a home loan, including interest.
Interest Rates
The interest charged on a loan is the amount a lender charges a borrower and is a percentage of the principal.
Here's what some of the leading lenders in India charge as interest rates. These rates are indicative and will change according to the details of the loan applicants such as type and place of employment, loan amount, age, number of applicants, etc. There may be special ongoing offers as well.
India's largest public sector bank, State Bank of India (SBI), at present levies interest rates between 6.90 per cent (loan amount up to Rs30 lakh) to 7.00 per cent (above Rs30 lakh).
HDFC charges 6.70 per cent (up to Rs 30 lakh). But for loan amounts higher than Rs 35 lakh, the interest rate varies but the general rate starts from 7 per cent per annum.
Punjab National Bank (PNB) offers 6.95 per cent (up to Rs 30 lakh) and 7.20 per cent (Rs 35 lakh and above).
Axis Bank's interest rates vary for self-employed and salaried individuals. For the former, it is 7.95-8.55 per cent per annum, and for the latter, the rates are 6.90-8.40 per cent per annum, according to Bankbazaar.com.
Processing Fee
All loan applications go through a credit underwriting process at the lender. During this process, the applicants' details are checked for parameters such as the applicants' creditworthiness, the property's legal position, and more. This involves manpower and resources, so, the lender charges a processing fee, which includes all the costs related to the underwriting process.
Different banks charge different processing fees. For instance, SBI charges 1 per cent of the loan amount, but a minimum of Rs 1,000 and a maximum of Rs 10,000. Borrowers at HDFC have to pay up to 0.50 per cent of the loan amount or Rs 3,000, whichever is higher. PNB charges up to 0.35 per cent, but a minimum of Rs 2,500 and a maximum of Rs 15,000, according to bankbazaar.com.
Sometimes, lenders may waive the processing fees to attract borrowers. One must note that the processing fee is not a guarantee of the loan application being approved.
MOTD Fee
A Memorandum of Deposit of Title Deed, or MOTD, is a document signed by the applicant stating that the property has been pledged to the bank as per the customer's will in order to acquire a home loan. This essentially means that you will get the full ownership of your house or property for which you have taken the loan when you have paid back the lender.
This document requires a stamp duty, which differs according to the state. Usually, it is between 0.1 per cent and 0.2 per cent of the final loan amount.
Conversion Fee
Transferring an existing home loan to another lender generally entails a conversion fee. Home loans are a competitive market and you may find a lender whose rates are more attractive than what your current lender is offering. Therefore, you may decide to transfer your loan to get more competitive and affordable interest rates. For example, SBI charges a 0.50 per cent conversion fee, according to Paisabazaar.com. Bank of Baroda's conversion Fee is 0.50 per cent of the principal outstanding + taxes, but a maximum of Rs 25,000.
Prepayment Fee
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 paying off the entire home loan. Most lenders do not have any kind of prepayment charges. However, for some fixed-rate loans, there may be prepayment or preclosure charges. Before taking a home loan, be sure to get clarification on the prepayment rules. There may also be a limit on how much you can prepay.
Stamp Duty
This applies to any legal document the represents a transaction between the borrower and the lender and requires signatures on stamp paper. The stamp duty depends on the actual expenses incurred.