A heading that should be ignored at ones peril! The interest rates and EMIs are not the only cost factor. Never underestimate how much the processing and administration fees amount to. A 1% administration fee and a 1% processing fee on, say, a Rs. 5,00,000 loan, would amount to Rs. 10,000. Other times, it could be just one fee (either administration or processing) but could yet work out to be much more if it is considerably higher at, say, 2.5 per cent or 3 per cent. The various other fees, which you are required to pay along with the margin amount, are:
- Interest Tax
This is the tax payable on the interest paid on a home loan and not the principal. This tax is some times included in the interest rate of the loan, or may be charged separately as interest tax.
- Processing Charge
Its a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount received by you can be less than the processing fee.
- Prepayment Penalties
When a loan is paid back before the end of the agreed duration a penalty is charged by some banks/companies, which is usually between 1% and 2% of the amount being pre paid.
- Commitment Fees
Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
Apart from these charges, you need to have a keen check on the three important terms mentioned below. Together the charges & the terms play an important role in molding your construction set-up.
This largely depends on a number of factors like your age, profession, salary, and the city you reside in among other such factors. It varies between Rs. 25,000 to Rs. 1 crore depending on the lender. As a rule of thumb, depending upon the HFC, you will have to cough up 15%-20% of the loan amount as a down payment. For smaller amounts, this may not be much. But for figures running into lakhs, this could make loads of difference. For e.g. an apartment costing Rs 10 lakh may get 85 per cent financing. So, you will have to arrange for the remaining Rs 1.5 lakh. If you take this into account, the additional thousands will definitely put a strain on your finances.
Generally, the maximum tenure of home loans is 15 years, with a few lenders offering tenure of 20 years or more (ICICI has recently launched a 30 year loan). The longer the tenure, more you pay in total interest, but your monthly payments will be less. So depending on your earning potential and bank balance, you can choose an appropriate tenure. An important requirement of most banks/HFCs is that you pay up the entire loan before you retire. You can always prepay your entire loan amount before it is due. There is a trend to do away with the pre-payment penalty being imposed by some lenders so its best you check on this as well.
Without doubt this is the most important parameter to factor into your calculations. The interest rates may vary from institutions to institutions and generally range from about 12.5% to around 16%. Repayment is in the form of EMIs (equated monthly installments). The longer the tenure, the more you pay in interest, but your monthly payment will be less.