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There's More To Pay Than Just Interest Rates While Taking a Home Loan
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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While availing a home loan, the first thing you might think about is the interest rates. Several questions could arise in your mind. What is the current home loan interest rate? What interest rate will you get? How much will be your total interest outgo? However, you might be surprised to know that interest is not the only cost you pay while availing a home loan. Though it is a substantial part of the entire cost of borrowing, there are many other costs that you need to pay for a home loan.
To plan the home loan better, it would be best to know about the other expenses that you incur while availing a home loan. Read on to find out.
The lender does not lend you a loan for the entire cost of the house. You need to pay a part of the house value upfront while availing the loan. This amount is called a down payment. Usually, the lenders require you to pay 15% of the house value as a down payment but you can always pay a higher percentage. It can get challenging to get a home loan without paying the down payment.
Processing fee is the indispensable cost you need to bear while availing a home loan. A processing fee is a non-refundable fee that you need to pay when you apply for the home loan irrespective of whether your loan is approved or not. Some lenders charge a fixed amount as a processing fee for all home loans. While some lenders charge it at a certain percentage of the loan which can be anywhere between 0.5% to 1%. Usually, the cost of processing the loan is included in this fee. Many lenders club documentation charges, legal charges, valuation fees, underwriting fees, administration charges, etc. in the processing fee.
Your home is not transferred in your name until you pay the stamp duty and registration charges for the purchase of the house. The stamp duty varies from state to state. It also varies based on the gender of the borrower. Typically, the stamp duty is between 4-7% of the property’s value. Similarly, you need to pay the registration fee when you register the property transfer at the registrar office. The registration fee is 1% of the property value.
If you have a fixed interest home loan, you would have to pay prepayment or foreclosure charges if you opt to prepay your loan. Similarly, if you choose to transfer the loan by switching the lender, you could have to pay the transfer fee.
These costs can add up to a substantial amount and increase your cost of borrowing. You must consider these costs while determining the total cost of the home loan and check your affordability to ensure that you can repay the loan comfortably. A home loan calculator can help you find an affordable loan amount.
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