Understanding the Fees & Charges on Your Loan Against Property

A Loan Against Property is a secured form of finance. Under this loan category, a borrower pledges their property as collateral in return for loan money. The ownership rights of the property stay with the borrower. However, the lender gets the right to sell the property for loan recovery in case of loan default. Since loans against property or mortgage loans involve collateral or security, borrowers must be extra cautious while signing the loan agreement for these loans. If need be, they must hire a lawyer who can translate the financial jargon for them and make it easier for them to understand the various stipulates and clauses. Borrowers must always also scan the agreement for hidden charges. This article concerns itself with different types of property mortgage charges. So, read on. 

Understanding the Fees and Charges on Your Loan Against Property

When you apply for a Loan Against Property, know that the mortgage loan processing fee isn't the only fee you will be required to pay. Let us look at the various fees and charges applicable in the case of a Loan Against Property.  

Mortgage Loan Processing Fee

Not considering the mortgaging loan processing fee while analysing the cost of borrowing is a mistake that most borrowers make. The mortgage loan processing fee is a one-time fee that borrowers have to pay when they avail of a Loan Against Property or mortgage loan. This fee varies between 0.5% to 2%* of the total loan value plus the GST. Since loans against property are big-ticket loans, this fee turns out to be a hefty sum and therefore, borrowers must remember to include this while figuring out the total cost of borrowing the loan.  

Legal Charges

Loans against property involve a substantial amount of money and therefore, lenders sanction these loans only after verifying all the papers. Most lenders hire lawyers to verify paperwork and lenders expect borrowers to bear the cost of these lawyers. These legal verification costs are known as legal charges and vary between Rs.5,000 and Rs.10,000*.  

Secure Fees

Lenders apply this fee and use the money they receive to enhance the security of your loan account. Most lenders allow borrowers to manage their accounts online - borrowers can make payments, check transaction statements, obtain NOC and do a lot more through their online loan account. Therefore, a borrower's loan account contains a lot of sensitive information that the lender must protect. The Secure Fee is the fee that a lender applies to protect the security of a borrower's account.  

Statement Charges

Using a lender's online loan portal, one can print loan account statements. However, it is also the duty of the lender to send a borrower monthly interest and principal statements. Lenders provide this facility for a fee called the Statement Charge or Statement Fee. 

CIBIL Report Charges

Once you have made an application for any kind of loan, the first thing that your lender will do is check your credit report. An individual's credit report indicates their creditworthiness as well as their ability to repay the loan. If your credit score is above 750, your loan application will get approved instantly. Anything under 700 can lead to loan application rejection.  

Lenders obtain a credit report from one of the four recognized credit bureaus in India and these bureaus charge a fee for providing an individual's credit report. Lenders take this fee from borrowers in the form of CIBIL Report Charges. 

Penal Interest or Late Fee

Penal interest or late fee is the fee that a lender charges a borrower in case of missed EMI payments. The penal interest or late fee is usually around 2%* of the outstanding sum. However, some lenders charge a higher late fee.  

Borrowers must try their best to make all payments on time. Late EMI payments not only attract a late fee but also negatively impact a borrower's credit rating and reduce their chances of getting approved for another loan in the future.  

Part Payment and Foreclosure Charges

Part-payment and foreclosure charges on loans against property are charges that a lender applies when an individual decides to close their loan before the stipulated tenor by either pre-paying a small amount or the entire loan value.  

Before signing the loan against the property agreement, check the documents for foreclosure and prepayment charges. You should be able to close the loan whenever you want without paying any fee. The Reserve Bank of India has passed a mandate that states that individuals who have availed of a Loan Against Property on floating interest rates can prepay or foreclose their loan at any time without paying any additional fees and charges.  

EMI Bounce Charges

If you owe money to someone and you pay it via a cheque and the cheque gets bounced, your bank will apply a cheque bounce charge. Similarly, during your loan repayment tenor, if you paid an EMI through a cheque and the cheque bounced, your lender may levy an EMI bounce charge on you. Not all lenders charge this fee, but some do. 

Loan Rescheduling Fee

This is the fee that lenders charge when a borrower requests a lender to increase their loan tenor.  

Balance Transfer Fee 

If you are unhappy with your current lender and therefore, want to transfer your loan to another lender, the new lender will charge a balance transfer fee to process your loan application. The loan balance transfer fee is quite high and therefore, one must opt for a property loan balance transfer only after proper financial planning.  

Final Words

If you are planning to take a Loan Against Property, you must understand the various fees involved as gaining an understanding of these charges will help you prepare yourself as well as ensure that your lender is not taking advantage of you in any way. 

*The figures are subject to time and may vary actually.