Types of Mortgage Loans and All Fees & Charges Involved

Mortgage Loans are secured loans which can be obtained by mortgaging property. You can secure these loans for a variety of purposes including plot/home purchase, construction, renovation, extension or for financing personal needs. Being a secured facility, Mortgage Loans come with a lower interest rate and a longer repayment period. Various financing options fall under the umbrella of Mortgage Loans.

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Mortgage Loan includes the following types of Loans:

• Home Loan: This form of loan is obtained to purchase a house.
• Home Loan Top Up: If you have an existing Home Loan and want additional funds at a low interest rate, you can opt for a Home Loan Top Up. Unlike a home loan, a Top Up loan can be used for personal or professional needs.
• Home Loan Balance Transfer: This facility helps you reduce your existing Home Loan Interest Rate by letting you transfer the outstanding loan balance to another bank.
• Home Extension Loan: If you want to add more space to your home or if you require a new room for your children or guests, you should go for a Home Extension Loan. This loan helps you extend your Home space to meet your growing needs.
• Plot Purchase Loan: If you’re considering purchasing a plot, you may be ineligible for a Home Loan, as it is provided only for purchasing already constructed/ under construction/ about to be constructed property. Plot/ Land Purchase Loan is the solution here for buying a vacant plot.
• Construction Loan: This short-term loan type is useful for funding the cost of building/constructing a home.
• Loan Against Property: A loan obtained against the mortgage of the property is called a Loan Against Property. The loan amount is given as some percentage of the market value of the property (usually varies between 40-75%). This loan can be used for any personal or professional purpose.
• Loan Against Property Top Up: If you have an existing Loan Against Property and require some quick funding, you can avail a top-up on your existing loan to fulfil all your personal and professional needs.
• Loan Against Property Balance Transfer: Like Home Loan Balance Transfer, you can opt for Loan Against Property Balance Transfer to enjoy the benefit of the lower interest rate at a different lender.
• Lease Rental Discounting (LRD) Loan: This term loan is offered to the lesser against rental receipts, lease contracts received from corporate tenants. The funds received can be used for business needs, such as expansion, capital requirements, consolidating obligations, etc.
• Commercial Property Purchase Loan: This type of loan is obtained for the purchase of commercial property in approved locations. The commercial property could be purchased from an approved developer/builder.

Many people prefer availing Mortgage Loans as they are secure, inexpensive and can be utilized for a wide range of purposes. However, before obtaining these loans, you must consider all hidden costs (in the form of fees) associated with them because they can considerably increase the final loan cost when combined with monthly home loan mortgage charges.

Here are some of the most common Mortgage Fees and Charges Associated with these Loans:

• Application Fee: This fee is charged at the time of applying for a loan and covers all the preliminary expenses incurred on conducting verification by a bank. The application fee usually varies between 0.50 – 2% of the loan amount.
• Processing Fee: This fee is charged to process a mortgage loan application and includes credit checks, basic administrative fees, property appraisals, and their costs alike. Depending on the borrower’s profile and income, the processing fee varies between 0.5-2% of the loan amount. This typically becomes due upon sanction of the loan.
• Legal and Technical Evaluation Fee: Many lenders engage firms to scrutinise the legal and technical documents of Home Loan borrowers (mainly in case of high-value properties). This cost is sometimes included in the processing fee; however, some lenders charge a separate legal and technical evaluation fee.
• Title Search Report Fee: The title search report signifies a clear title of the property. Any mortgage charges for the home loan or encumbrances related to the property (for/against which the mortgage loan is being taken) and their present status are mentioned in this report. It is extremely important to know whether the charges on the property in question have been met or are still pending before the release of the property. This fee usually varies between 2000 and 5000 in most cases.
• Stamp Duty/ Stamping Charges: Stamp duty or property mortgage charges are a mandatory fee paid by the buyer to the State Government to register the house under his/her name. The house will not be registered in the buyer’s name unless this fee is paid. Stamp duty may vary from state to state and range between 5-7% of the value of the property. This cost is due upon registration of the property. The court charges a registration fee varying between 1-2% to provide a registration certificate to the buyer, indicating a change of property ownership. The registration fee is due upon sanction of the loan.
• Pre-payment or Part Payment Charges: “Loan Prepayment” is an agreement between a lender and a borrower indicating whether the borrower is allowed to prepay (partial payment) his/her loan amount before the due date or not. Some borrowers may not charge you any fees for loan pre-payment, while others may charge up to 4% of the principal outstanding as a pre-payment penalty. Many mortgage lenders allow their borrowers to pay off up to 20% of the outstanding loan balance each year. Consider clarifying this clause before signing the loan agreement.
• Full Foreclosure Charges: If you wish to foreclose your mortgage loan in full before the due date, you may have to pay foreclosure mortgage charges. Some banks may not charge you any mortgage fee for a home loan, to do so while others may charge up to 4% of the principal outstanding as a foreclosure penalty.
• Documentation fee: For smooth completion of certain formalities, such as getting the ECS mandate activated, getting the loan agreement signed, etc., some lenders charge a nominal documentation fee.

Mortgage Loans may seem to be a cheaper financing alternative initially; however, inclusive of the charges mentioned above, the entire loan cost may increase significantly. It is advised to read the fine print carefully and ask the lender for clarification regarding any hidden cost.