Loans against property have gained immense popularity among business owners and individuals in recent years. This is because it is one of the most secured ways of getting a loan while keeping one’s property as collateral. However, in order to make the most of this feature and plan finances in the most efficient manner, one must have an understanding of the various charges applicable on property loans.
Here is a more detailed look at the various loan against property charges that one must be aware of.
Processing or application fee is the one-time fee charged by the lender for all the expenses incurred for processing the mortgage loan. This fee may vary based on the loan type, amount, and the borrower’s creditworthiness. For instance, for a house loan, the processing fee may range from Rs.5000 to 1% of the actual loan amount.
In most cases, the lender charges a certain portion of the principal, interest and loan statements as statement charges that help in monitoring the progress of the property loan. The hard copy of the statement charges covering the total cost of printing is sent to the borrower. However, these charges can be avoided if the individual chooses to switch to online management of the loan. Such an exclusive feature is offered by most of the reputed loan providers.
All you need to do is log onto the lender’s portal using the unique customer ID and password, and access all the statements related to the loan against property at one’s convenience.
LAP interest rates
The loan against property interest rates refers to the cost at which the provider offers a loan. The rate of interest is calculated on the amount borrowed and the tenor for which the loan is taken. LAP interest rates are, thus, calculated annually and added proportionately to the monthly equated instalments or EMIs.
The penal interest or penal interest rate refers to a type of penalty interest that the lender charges in case the borrower fails to pay the EMI as per the loan repayment schedule. Regardless of whether one pays the EMIs on a monthly, quarterly or annual basis, if payment is not made by the scheduled date, the borrower will have to compensate by paying a penal interest on the same. To calculate the penalty interest, the rate charged by the lender, the amount that is overdue and the period of default – all are taken into account.
For instance, if for loan amounts above Rs.25,000, the irregularity exceeds the EMI amount for a period of a month, then the penalty interest will be charged at 2% per annum, over the applicable loan against property interest rate, on the amount overdue for the period of default.
Charges on EMI Bounces
These are the charges incurred by the borrower for not being able to pay the EMIs due to the cheque bouncing because of lack of funds in his/her account. As a consequence, the borrower will then need to pay a certain amount as a penalty for every time a cheque bounces, along with the EMI for the respective month.
This involves repaying the complete loan amount in a single payment before the tenor lapses. However, foreclosing the loan comes with a fixed charge. Most loan providers charge up to 4% over applicable taxes on the outstanding principal amount for foreclosure. To make the repayment process smoother, be sure to choose a loan that has a nominal foreclosure charge.
Charges on part prepayment
Individuals having sufficient or excess funds in hand can choose to make partial prepayments towards the principal amount to ensure that the loan is paid off quicker. Again, it may be a good idea to select a provider that offers minimal prepayment charges, best suited for the borrower.
A secure fee is the one charged by the lender to reinforce security for the borrower’s account, personal and transaction details in whatever manner deemed necessary. This ensures the safety of the borrower’s online account and complete data.
The Final Word
Knowing about the different charges applicable on a loan against a property provides a clear picture of the expenses involved in taking a loan and budgeting the repayment procedure. However, while opting for such a loan, it would serve one right to utilise a property loan EMI calculator to figure out the instalment amount to be paid and relook the charges and fees involved instead of simply picking one by looking at the low rates before taking a decision.