While taking a mortgage loan in India, borrowers usually focus on the interest rate, tenure, and loan amount. There are various charges involved with it that influence the borrowing cost. There are various charges that lenders impose but are usually not considered by the borrower. They are administrative charges, legal charges, processing charges, and miscellaneous charges. It is required to know about these charges so that an intelligent financial decision can be made.
This article explores the different charges of mortgage loans, with a special focus on the Loan Against Property processing fees, another loan against property-related charges, and how to reduce them.
Understanding Mortgage Loan Fees
Loan against property (LAP) or mortgage loan is a secured loan where the borrowers pledge their property as collateral. Although it has lower interest rates compared to unsecured loans, there are several hidden fees the borrowers must be aware of. All of these fees can be categorized under processing fee, legal and administrative charges, and prepayment fee.
Loan Against Property Processing Fee
One of the first charges levied on a borrower is the LAP processing fee. Lenders charge this fee to undertake the administrative expense of evaluating the loan application.
- The LAP processing fee varies depending on the bank or financial institution. It is usually 0.5% to 2% of the loan amount.
- Some lenders have a minimum processing fee, usually between ₹10,000 to ₹50,000.
- This fee is non-refundable, that is, even if the application for the loan is rejected, this amount is not given to the borrower.
- Processing fees are inevitable but the borrowers can try to bargain with the lenders or look for banks that offer discounted rates. Some lenders waive processing fees in festive offers or special schemes.
Other Hidden Loan Against Property Charges
Besides the loan against property processing fee, several additional fees are to be known by the borrowers:
1. Legal and Technical Verification Fees
Since a loan against property is a secured loan, lenders conduct an extensive verification of the collateral property. This consists of legal due diligence and technical evaluation to determine the true worth of the property.
- Legal charges cover the expense of verifying property documents, title ownership, and encumbrance certificates.
- Technical charges involve the lender-appointed valuers who establish the market value of the property.
- The charges are usually between ₹5,000 to ₹25,000, depending on location and type of property.
2. Stamp Duty and Mortgage Registration Charges
Borrowers have to pay mortgage registration fees and stamp duty to legally effect the mortgage loan. The fees are levied by the state government and are based on the loan size and property location.
- Stamp duty is typically 0.1% to 0.3% of the loan amount.
- Mortgage creation registration fees are generally ₹5,000 to ₹10,000.
- There may be additional notary or franking fees in certain states.
These are mandatory and need to be remitted to legally register the loan agreement. Borrowers must verify the actual stamp duty fees that are charged in their state.
3. Foreclosure and Prepayment Charges
In case a borrower decides to prepay the loan prior to the tenure period, lenders levy foreclosure or prepayment charges. Although the Reserve Bank of India (RBI) banned prepayment charges on floating-rate loans, fixed-rate LAPs still carry penalties.
- Foreclosure charges on fixed-rate loans against property can range from 2% to 5% of the amount outstanding.
- Part lenders also levy a partial prepayment fee if the borrower pays a substantial part before the term ends.
Before signing the loan agreement, borrowers need to go through the lender’s foreclosure policy and opt for a low prepayment fee loan.
4. Loan Conversion Fees
Most borrowers opt to convert their mortgage loan from a higher to a lower rate of interest. However, lenders charge a loan conversion fee for the difference in the form of interest rate.
- Conversion charges range between 0.5% to 1% of the loan balance.
- Some banks may also charge fixed amounts of ₹10,000 to ₹25,000 for interest rate changes.
Borrowers must choose if the cost of conversion is justified by the interest savings.
5. Documentation and Administrative Fees
Lenders also charge ancillary fees for loan documentation and account maintenance. These are:
- Loan agreement fees: Fees for drafting and notarizing the loan agreement.
- Loan statement fees: Some banks charge ₹200 to ₹500 to dispatch duplicate loan statements.
- CERSAI registration fees: The Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) charges a meagre fee for registering mortgage loans.
While the fees seem minor for each one, collectively over time they do add up and increase the expense of the mortgage loan.
How to Minimise Loan Against Property Charges
Hidden charges can significantly increase the cost of borrowing. Here are some effective strategies to minimise loan against property fees and charges:
1. Compare Lenders Before Applying
Different banks and financial institutions have varying fee structures. Before applying, borrowers should compare multiple lenders to find the one with the lowest processing fees and other charges.
2. Negotiate Processing Fees
Most banks offer negotiable processing charges, especially for high-value loans. Borrowers with a favourable credit score (750+), steady income, and sound financial status can negotiate lower fees.
3. Search for Festive Offers and Waivers
During festive seasons, the majority of banks waive or refund loan processing fees and documentation charges. Borrowers need to search for such offer plans before applying.
4. Choose a Lender with Low Prepayment Penalties
Borrowers who want to prepay the loan should select lenders who impose low or no prepayment charges. Floating-rate loans, by policy, do not include prepayment penalties, and thus are a better choice for prepayment.
5. Read the Loan Agreement Closely
Borrowers should read the loan agreement carefully, especially with regard to hidden charges, foreclosure charges, and administrative charges.
Conclusion
Taking a loan against property is a major financial commitment, and borrowers need to be familiar with all associated costs and charges. Other hidden costs like processing fees, legal fees, foreclosure charges, and administrative charges can increase significantly to the total cost of the loan.
With lender comparison, fee negotiation, and understanding prepayment terms, borrowers can avoid unnecessary expenses and have an easy borrowing experience.
Before obtaining a mortgage loan, always read the loan contract thoroughly and get all fees explained by the lender so you are not surprised in the future. Knowing about mortgage loan fees will enable you to make a wise financial decision and save money in the long term.
