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12 July 2016

Other Hidden Costs before Taking a Home Loan


Other Hidden costs in home loan you are not prepared for! Getting a home loan may seem the easiest as there are many institutions and private brokers lending money as loans for purchase of flats and also the procedure has been made quite easy. How can we come up with the figure of loan amount to be applied for. Will it be the total value of the flat or will we get the flat ownership by paying loan amount are few simple questions that we are unaware of. Usually we feel that we can apply for a loan and purchase a new flat, but this is not so.
Banks and financial institutions only give a certain percentage of the loan amount and not the total amount. Usually they may give maybe 70 to 80 percent sometimes even 90 percent considering your past financial record. The amount to be prepared for, prior to the application of loan, is termed as down payment which the purchaser has to pay before applying for a home loan. Deciding on the amount to be taken as loan is an important decision as the borrower will have to pay installments along with interest for certain period of years. Usually loan may be taken for twenty years or less so the individual must be prepared for having financial stability during later period of years. Always there is risk of losing job or death of a family member unexpectedly and the loan may have to be cancelled and property auctioned. But still it is worth taking the risk as no progress will be done without taking certain amount of risk.
Then also in case of self professionals, business people and private establishment owners  there is another uphill task to prove their financial stability as the source of income may not be fixed.
It is advisable to pay larger amount as down payment and reduce the amount for loan as the interest charged by the financial institutions is more and the same property can be got at lesser price
 ‘Other hidden costs’ are a term we all are familiar with. Many a times we go to purchase some good and we are made to pay ‘taxes extra’ an amount more than the printed price. Usually there is a small asterix below any advertisement which we do not pay much attention but during purchase it increases the price. The same matter happens with home loans. We see heavy discounts and low interest rates but we do not consider the hidden costs that we end up paying during taking a loan for purchasing a home. A home loan may be in simple terms amount borrowed by the borrower from the lender for a certain period of time with a certain amount of interest charged with the amount to be paid. As an individual comes up with the decision of taking a home loan one is usually not aware of other processing charges and this may lead to quite some amount if not prepared for. Also certain financial institutions may make the borrower open account in their bank with depositing a certain amount minimum or also the borrower may have to oblige by taking their shares which can be a pinch as the individual may not be prepared for this money.
It is always advisable to get thorough knowledge from different financial institutions and private brokers for their special requirements other than the interest rates before taking the step of applying for a home loan. 
1) Processing charge: This amount is taken by the bank for the application and other processing charges. It may vary for every institution but usually may be 0.5% till 1% of the loan amount.
2) Administrative fees: The different paper work and documents required as well as the stationary is added as a fee.
3) Legal charges: Some banks may also charge for legal verifications and visits from the verification teams. This may vary from different individual banks or private brokers.
4) Prepayment penalties: Today due to competition most institutions have waivered the penalty charges for prepayment and closure of the home loans prior to the fixed tenure for repayment. In case the borrower or individual that has taken the loan is willing to pay the amount prior to the set dates the bank loses on the amount earned as interest so they apply penalty charges for closure of the loan. Still the borrower is at benefit as this penalty fee is much lesser than the interest rate charged by the financial institution. This can be clarified beforehand.
5) Delayed payment charges: Sometimes under unexpected circumstances the borrower may not be able to pay the monthly instalment. Here for the next month amount as delayed payment is also charged with the amount. The percentage may vary for different lenders. As also some banks allow prior emails or request and respect this decision of delayed payments, or club EMIs together, depends upon individuals circumstances and the bank authorities.
6) Cheque bounce charges: Penalty charges are levied in case of bouncing of cheque by the borrower. Definately this is a rule breaker and the bank may charge penalty for this. It is always better to deposit the amount beforehand in the bank where the EMIs are deducted to avoid this.
Keeping in mind these important financial points helps the borrower to be prepared with this extra amount before applying for a home loan. Some private brokers may also charge transfer charges of flat to the borrower or purchaser of the flat.
Home Loans-Simplified Facts

7 comments:


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