Purchasing a property is often one of the most significant investments of a person’s life. However, when a person needs a substantial amount of money to deal with an emergency, a property loan is often the best possible option. To apply for a loan against property, one should thoroughly research lenders, their interest rates and processing fees. Keep reading to know about property loan processing fees and other involved charges.
Property loan processing fees: Explained
When an individual applies for any loan, say, a loan against property, they have to pay certain charges besides the interest. One of these additional charges that one must pay to their lender is the processing fee.
Lenders charge processing fees on both residential and commercial property loans. This charge pays lenders for the costs that they face while processing a loan application. A property loan processing fee is a percentage of that loan principal that the lender approves to the borrowers. After the introduction of Goods and Service Tax (GST), lenders must charge GST along with the processing fee.
How do lenders charge property loan processing fees?
The processing fee for property loans varies from one bank to another. Unlike property loan interest rates, this fee does not depend on an individual’s repayment history or credit score. Every bank and NBFC levies a specific percentage of the loan amount as a processing fee. One may also come across lenders that do not charge any processing fee on fulfilling certain loans against property eligibility criteria. The standard processing fee range for property loans for self-employed and salaried individuals among most lenders is 10-18%. The present GST charge for all financial institutions offering LAP is 18%. Several banks and NBFCs provide pre-approved offers to their long-standing customers. Such offers bring benefits like quicker application and no processing charges for eligible customers. Borrowers can know their eligibility for pre-approved offers by visiting the online portal of a lender and filling in a few basic details.
Charges other than processing fees
Along with the property loan processing fees and interest, lending institutions levy several other charges. Following is a list of additional charges that most banks and NBFCs charge from borrowers on property loans:
- Part-payment charges: Unlike a foreclosure, sometimes borrowers choose to partially repay their outstanding loan. However, this part-payment is chargeable with certain penalties. This charge usually does not apply to loans with floating interest rates. Before opting for a prepayment, one must check how much their lenders charge for the same. Individuals can use a property loan EMI calculator to check the savings they can make with part-payments after considering these charges. If this amount does not affect their financial situation for future savings and repayments, they are good to go. However, if it’s not so, one must avoid pre-payments.
- Late payment fees: Borrowers are expected to repay their respective EMI for loans against property and other loans on the due date. Failing to do so, the individual’s outstanding amount increases and their credit score drops. Furthermore, on repaying debt after the due date, the borrower is liable to pay late payment fees. This fee depends on the person’s EMI and the days of delay. Besides an additional penalty late payment of debt, leaves a scar on an individual’s credit history. This drops a person’s loan against property eligibility in the eyes of future lenders. Delay in payment reflects that the person is financially indisciplined and not punctual to pay his/her debt.
- Valuation charges: This is another fee that banks and NBFCs charge along with property loan processing fees. Valuation charges might vary between lenders, but every lending institution charges them for a property loan. Banks and NBFCs charge valuation charges to make up for the expense of lawyers and land valuation experts. The amount charged usually depends on the actual expense of the process.
- Conversion charges: Banks and NBFCs charge this fee to borrowers on approving their request to convert fixed-interest rate loans to floating-rate loans or vice versa. Unlike property loan processing fees, conversion charges are one-time payments. Not all borrowers have to pay this conversion fee; it is specific only to borrowers who wish to change their interest rate.
- Balance transfer charge: Very often, borrowers opt for the balance transfer of their property loans from one lender to another. Borrowers usually go for an LAP balance transfer if they find a new lender offering lower interest rates and other benefits. However, before applying for a balance transfer, a borrower must repay at least 6 EMIs of their ongoing loan to their present lender. When a lender approves a borrower’s balance transfer, they must pay the balance transfer fees. This can affect the amount of savings one can make from a balance transfer.
- MOD charge: While applying for a property loan, an individual will also have to pay a Memorandum or Deposit (MOD) charge. This charge ensures that a borrower has submitted all the correct property-related documents to the lender. These documents can include title deeds, sales deeds and other documents for the property to pledge as collateral.
- Legal fees: Lenders will also levy legal fees to legally verify the property documents that an individual submits. Every lender charges a legal fee however; this amount might vary between lenders.
- Loan rescheduling charge: Many lenders allow a borrower to increase their loan tenure. But when allowing it, they will charge a loan rescheduling fee from the borrower for extending their tenure. It is also important to note that, not all banks and NBFCs offer this facility to borrowers. Also, the loan scheduling charge is subjective to the lending institution as this charge varies between lenders.
- Foreclosure charges: Most lenders allow the foreclosure of loans subject to a foreclosure charge. So if an individual wants to close his/her loan against property before the end of the tenure, he/she must pay this charge. The foreclosure varies between lenders and different types of loans. Property loans with floating interest rates do not carry any foreclosure charges but they are applicable for most fixed-rate loans.
While comparing lenders, one must consider the interest and these additional charges to choose the most affordable option. One can use a LAP calculator to evaluate their monthly obligations beforehand to make an informed decision. Today, many banks and NBFCs charge minimal property loan processing fees to attract customers. These charges vary among lenders, but most of them will charge this fee for land valuation and legal verification.