Charges related to home loan

Home loan have charges attached to it about which some of us do not have a clear idea. Here we have tried to explain about those charges so that you have clear picture about them and know exactly what do they mean?

EMI in some cases is charged from the month of final payment of loan. Some banks calculate it from the month following that. The borrower should decide about EMI depending on his cash flow position. The time period from which the EMI will be charged has an impact on the total interest cost to be paid by the borrower over the loan tenure.

There are two types of rate – floating and fixed.

Floating interest rate: - An interest rate, this move up and down with the rest of the market or along with an index. This contrasts with a fixed interest rate, in which the interest rate of a debt obligation stays constant for the duration of the agreement.

A floating interest rate can also be referred to as a variable interest rate because it can vary over the duration of the debt obligation.

Fixed interest rate: - A loan or mortgage interest rate that will remain at a predetermined rate for the entire term of the loan.

When you take home loan the repayment time period, EMI and the interest rate, all these are finalized. In case of interest rate you can choose from the two types of rates fixed or floating. Later on there can be chances that you might want to switch over from a floating rate to fixed rate (because the interest rates are likely to go up) or vive versa (in case the interest rates are expected to come down) then the bank charges penalty amount from the borrower.

The bank fixes the time period for the repayment of the loan and the borrower has to complete the installments with in that period. In case the borrower income increases and plans to pay the balance installments of the loan before the time period then some banks charge prepayment penalty in case the loan is repaid before the full term or certain agreed minimum period. This is done because it disturbs the cash flow and income estimates of the bank.

The amount can vary from 1-5 percent of the outstanding amount of loan. Some banks waive off these charges under some conditions. The charges are payable on the balance amount outstanding and not on the total amount of loan sanctioned.

If you are punctual in repaying the installments i.e. paying all installments on time then some banks as an incentive can waive off of last one or two installments.