Taking a loan can be an overwhelming procedure for a common man. One has to consider the gigantic loan amount which needs to be repaid in installments, and on top of that, the interest and other charges.
Taking a home loan does not mean that the costs are the principle and interest amounts only. There are many added costs and fees that will come knocking the doors when you least expect it. And thus, it becomes extremely important to learn about the auxiliary costs that only the masters are aware of.
Well first of all the most extrusive cost is the principle which is the loan amount, but it can’t be actually considered as a cost of the loan. Meanwhile, if you consider EMIs, the principal amount in the initial periods is less and it gradually increases in the later periods.
The main charges that a borrower is concerned about are the interest rates imposed on their home loan. And moreover, because of the loan’s initial phase, the interest rate is the highest and then it keeps on decreasing, it becomes a little over the top for the borrower to cope up with it. Furthermore, the interests also vary, namely, Fixed interest rate and Floating interest rate-
• The Fixed interest rate on the loan specifies the exact amount of interest being charged throughout the life of the loan. The interest rate is kept fixed for the entire duration. This simply means that the principal and interest payments are same for every timely payment.
• For Adjustable/Floating interest rate, initially, the interest rate remains same for a few years and then continues to adjust to the prevailing market rate of interest. This signifies that although the principal and interest payments may vary throughout the life of the loan, but an upper limit is observed on the rise in the interest rate.
This is the fee that is about 0.5% to 1% proportion of the total mortgage loan. This fee is charged by the money lender for processing the application of a new loan or also described as a compensation or commission for bringing the loan up-front.
The following particular fees are some of the hidden fees that one might overlook in the hefty process of taking a loan-
• Document Retrieval charges: After the application of your loan, when you submit all your important documents, the bank deposits all these further to a central storage unit for safety purposes, called the Central Document Repository (CDR). This process is chargeable to the borrower at the time of total repayment, to transfer the documents from the repository to the borrower.
• Memorandum of Deposit of Title Deed (MODC): The document that ensures that the borrower has deposited all the title documents of the mortgaged property by his own will, to the lender is called MODC. For this process, the government levies a stamp duty of 0.1-0.2% of the loan amount to register the document.
• Legal and Technical Fees: The banks have a team of legal and technical professionals that look after the verification of the borrower’s submitted documents. So the bank charges a sum of fees for these services, but in most the cases it is included in the Origination fees.
A fellow borrower should acquire a proper knowledge before applying for a loan. Also he needs to play mindfully in these matters, mindful in the sense that if the borrower properly scrutinizes the list of money lenders, he could cut back on a large portion of the costs. The deal is to judiciously minimize the cost, which can be done by choosing a suitable Money Lender.