Home loan borrowers should understand the terms and conditions of the loan before finalising it. Apart from the interest rate and EMI, there are other factors that may affect the total cost of the loan.
   
Some of these include:

File charge    

Some banks charge this amount to the borrower.

Processing fee    

It is payable at the time of applying for the loan. This is nonrefundable and is charged to cover the costs of determining the loan eligibility of the potential borrower. It varies from 0.5 to one percent of the loan applied for.

Administrative fee    

This is payable on acceptance of the offer - once the loan has been sanctioned. The amount is the same as the processing fees - 0.5 to one percent of the loan sanctioned. Some banks charge both processing and administrative fee together.

Legal charge    

This is charged towards the legal evaluation of the papers related to the property.

Commitment charge    

Generally, a loan needs to be used up within a specified timeframe. Commitment charge is payable if the loan is not used within a specified period of time after sanction.

Prepayment charge    

Some banks levy a prepayment penalty in case the loan is repaid before the full term or certain agreed minimum period. This is done because it disturbs their cash flows and income estimates. The amount varies from one to five percent of the outstanding amount of loan.

   The charges should be payable on the balance amount outstanding and not on the total amount of loan sanctioned.

Switchover charge    

If a borrower decides to switch over from one bank to another, some banks charge a fee. However, if the loan is repaid out of one's own funds, this charge may not be payable.

Insurance    

Some banks insist that the house should be adequately insured or the borrower should take a life insurance policy where the sum assured is at least equal to the loan amount. Some offer free insurance cover for the borrower and the house.

   In case of unfortunate death of the borrower, his family is not financially affected because of the housing loan liability. The insurance amount is used to repay the loan. In case of any damage to the house, the reconstruction cost is paid to the borrower.

Commencement of EMI    

In some cases, the EMI starts from the month of the final disbursement of loan, while in other cases it starts from the month following that. The timing of commencement of EMIs has an impact on the total interest cost to be paid by the borrower over the period of the loan.

Waiver of instalments    

As an incentive to pay all instalments on time, some banks offer waiver of last one or two instalments.

   The borrower should seek proper details from the bank regarding these conditions and translate their monetary impact.

QUICK BYTES    

some banks levy a prepayment penalty in case the loan is repaid before the full term or certain agreed minimum period
   
some banks insist that the house should be adequately insured or the borrower should take a life insurance policy where the sum assured is at least equal to the loan amount