Just like home buyers should consider the total cost of a house (including the base price, GST, parking charge, stamp duty, registration, brokerage, etc) before purchasing, home loan borrowers should also consider the ‘effective cost’ of a housing loan. Home loan is a commitment of 15-20 years and therefore, borrowers should consider all costs and decide accordingly.

“Banks may not tell all charges upfront. Since charges can come with different names like processing fee, legal and technical charges, stamp paper cost, GST, etc., ask them about the total costs involved with the loan,” says Aparna Ramachandra, Founder & Director, Rectifycredit. com. Banks also usually insists on insurance for the house, an additional cost you need to factor into the calculation. Some lenders offer to waive these charges, but make sure that the bank is not charging them indirectly.

Since these charges vary from bank to bank, comparing them will be difficult. A better way is to deduct these charges from your home loan amount and recalculate the effective cost. For example, assume that you are taking Rs 50 lakh home loan with a repayment period of 20 years and total charges involved are Rs 20,000. At 7% interest rate, the EMI will work out to Rs 38,765. Since you have to pay Rs 20,000 upfront, this is equal to taking a net loan of Rs 49.80 lakh. In other words, you are paying an EMI of Rs 38,765 for a net loan of Rs 49.80 lakh and its interest costs works out to be 7.05%, an additional cost of 5 bps. The comparison will become easy once you calculate this for all lenders.

While interest rate is critical, borrowers should also consider the ease of getting loans (the processing time taken by the bank). Ask friends or relatives about their experience with various banks. It also makes sense to have a pre-approved home loan before you zero in on your dream home.

Read more: EconomicTimes


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