Home Loan 101: A Handy Guide on How Charges Are Applied

By LODHA

Owning property is a dream come true and a huge life milestone, regardless of whether you're a first-time buyer or a veteran investor. However, the path to property ownership has evolved dramatically over the years. Traditionally, the prospect of buying a home was often a monumental and capital-intensive undertaking for which one had to save diligently, make sacrifices and navigate through a variety of other challenges. It was a laborious journey, one that required substantial financial preparation, sometimes extending over decades. 

But today, a seismic shift has occurred in the way we finance our dreams of owning a home. The age-old hurdles of home buying have been transformed by the advent of modern financial tools. One such tool that has revolutionized the game is the home loan. To reduce your financial burden, you can always seek aid in the form of a home loan. If you've heard of home loans but aren't familiar with the ins and outs, then fret not. Continue reading to understand the home loan definition and types, and the kind of charges it comes with. 

Decoding the Home Loan 

Before getting into the nitty-gritty of the charges applicable to a home loan applicant, it's ideal to understand this form of financial aid in greater detail. Looking at a standard home loan definition can help you grasp what it entails. A home loan is a secured loan applied to purchase a property. Since it is a secured loan, the property you will use the funds to purchase will act as collateral. In case you cannot repay the loan amount, the property will be seized by the bank or financial institution in question. However, to help you pay off the loan amount with greater ease, home loans are offered at economical interest rates and for longer tenures. 

Understanding the home loan meaning also helps clear up another question: what is the meaning of a mortgage loan? Simply speaking, mortgaged land is also a secured loan that allows you to acquire funds by providing some sort of security, mostly an immovable asset. Usually, residential and commercial properties are used as security and mortgaged to procure funds. While it is easy to confuse the two for the same, the two are slightly different. While a home loan is issued for the specific purpose of buying residential property, a mortgage loan amount can be used for other reasons. 

Apart from home and mortgage loan meaning, it is also crucial that you learn more about the types of home loans available: 

Fixed Rate 

If your home loan comes with a fixed interest rate, it means that the rate will remain the same throughout the tenure. 

Floating Rate 

A home loan with a floating interest rate comes with rates that fluctuate based on market conditions. 

A Checklist of Charges Associated with Home Loans 

Now that you know more about housing loan meaning and the types available to you, it's time to look at the associated charges. Here are the charges you should look out for while applying for a home loan: 

Processing Fees 

When you apply for a home loan, your application must be processed by the bank or financial institution. To that end, the lender conducts a lengthy and thorough verification of your documents and details. Since it could take considerable manpower and time to process an application, lenders charge a processing fee. 

Administration Fees 

Often, the processing fee will be split into two, the other set of charges is known as an administrative fee. The fee is levied after the loan amount is disbursed. 

GST 

As per Indian law, home loans and associated interest payments are not subject to tax. However, the charges levied during the application process are subject to Goods and Service Tax (GST). Before applying for a loan, make sure to check the prevailing GST rate to understand how much you would be paying in taxes. 

Legal Fees 

When you apply for a home loan, the lenders have to value the property and verify different documents. You might be levied legal fees to pay for such tasks. Make sure to check the roster of charges to see if you will be liable to pay legal fees. 

Inspection Fees 

A lender might want to inspect the property in question before disbursing the loan amount. To gauge the property's value and other legalities, lenders might carry out an inspection, with the expense coming out of your pocket.  

Tenure Change Charges 

In case you repay a considerable portion of the loan amount, you might need to reduce your tenure. However, when you opt for a reduction of tenure, you might have to pay a minor fee to the lender. The same is also true if you want to extend your tenure. 

Conversion Fees 

As mentioned above, lenders offer two types of interest rates on home loans. In case you want to switch to a different kind of interest rate mid-tenure, you have to pay conversion fees. Such fees range from 0.50% to 3%, depending on your lender. Before opting for conversion, make sure to check your lender's policy and the charges associated with the facility. 

Late EMI Charges 

Normally, you can pay off a loan amount via monthly payments, known as EMI. However, if you pay later than the due date, you will be charged a fixed amount or a percentage of the outstanding amount. 

There might be other costs associated with a housing loan, so make sure to double-check the same. Now that you know more about housing loan meaning and the charges levied, you can seek adequate financial aid to purchase your dream home. 

To improve the chances of your application getting approved, it is best to choose a property that will meet the lender's legal demands, verification, and inspection. Choosing a credible builder can go a long way in helping you acquire a housing loan. 

At Lodha, we understand the significance of acquiring a home and aim to make the process as smooth and convenient as possible for our customers. To facilitate this, we have established Lodha Fincorp (LFC), our in-house loan team. LFC collaborates with a diverse network of over 15 banks, ensuring a wide range of options for our customers. This strategic partnership allows us to recommend the most suitable bank based on each customer's unique income profile, ensuring that the home loan experience is tailored to their specific needs. Our commitment is to provide comprehensive support and guidance throughout the home loan process, making homeownership a reality for our valued customers.