Fees and Charges on Property Loans: What to Expect

A property loan, also known as a loan against property (LAP), is a kind of secured loan that individuals can acquire by pledging a residential unit, commercial property or plot of land with a lending institution. However, the asset should be self-owned with a clear title and proper paperwork. Due to larger loan sanctions, cheaper interest rates, longer repayment terms and end-use flexibility, this particular credit facility is beneficial to borrowers. Therefore, it is crucial to understand the applicable fees and charges on property loans, should you intend to avail of one.

Fees and Charges on Property Loans 

Any credit solution will entail specific associated costs. In the case of a loan against property, individuals may expect the following fees and charges:

Property Loan Interest Rate 

The interest rate that lenders offer is a certain percentage of your loan amount. A lower property loan interest rate can simplify loan repayment, resulting in manageable, affordable EMIs and lower borrowing costs. To gain attractive interest rates, one must possess a strong credit record and steady income. Moreover, the real estate asset to be pledged as loan collateral must also hold high market value. 

Regardless, your loan obligation will also be impacted by the loan tenor; so factor in your age, salary, loan amount, interest rate, other financial obligations, etc. to pick the most optimal LAP duration. Be sure to access an online property loan EMI calculator so that you may accurately evaluate the ideal tenor and instalment outgo. 

Processing Charges

Lenders normally levy a fee for processing your LAP application. This sum is paid just once and is non-refundable. The fee amount will be based on the quantum of your loan. 

Legal Charges

Since property loans typically involve large sums of money, lenders will approve your loan request after reviewing the supporting documentation. A majority of lenders consult solicitors to run legal checks on the paperwork, for which a service fee payment is mandatory. Also, a separate documentation fee may be imposed during the document assessment and verification process.  

EMI Bounce Fees 

You will be responsible for footing an EMI bounce fee if your instalment cheque bounces. Lenders generally compute this penalty as a proportion of the overdue EMI amount. 

Loan Rescheduling Fees

Since a loan against property is a long-term loan, borrowers may occasionally ask lenders to modify particular terms and conditions pertaining to their loan. Thus, lending institutions might charge a loan rescheduling fee when borrowers request a longer payback tenor. 

Penal Interest or Late Fee 

Failure to effect loan EMI payments on time will attract a penalty fee. Since this could be a significant sum, try to stick to the repayment plan always. Additionally, skipping EMI payments lowers a borrower’s credit score, which further hurts their eligibility for securing future credit. Hence, steer clear of loan defaults.

Switching Charges

You might need to cover a switching fee should you choose to renegotiate the existing interest rate during the tenor. This means that you may seek to change from a floating interest rate to a fixed interest rate loan; or from a higher floating interest rate to a lower floating interest rate.

Part Prepayment Penalty

Borrowers who obtain a loan against property at fixed interest rates are likely to face a part prepayment fee if they wish to settle a portion of their outstanding loan balance, over and above the stipulated EMI payout. As per the Reserve Bank of India mandate, floating interest rate borrowers are exempted from this expense.

Foreclosure Charges

Like prepayment fees, foreclosing your loan too incurs a specific penalty. Because you are repaying the entire outstanding loan amount in one go instead of several instalments, make sure your LAP constitutes a modest foreclosure fee to lessen the payment load. 

Summing Up

Banks and lending institutions might levy additional fees, apart from the ones mentioned here. It is, therefore, advisable to confirm and negotiate the requisite charges in advance to avoid any confusion later on. Whilst assessing the various property loan features – namely the loan against property eligibility criteria, documentation needs and other pertinent details – all necessary fees, charges and penalties must be taken into consideration. When combined, they could lead to a substantial hike in the overall credit costs. 

Being aware of these fees beforehand will enable you to budget your instalments effectively. A loan against property calculator can further aid loan customisation if you strive for reasonable EMIs that match your repayment potential and credit requirement.