“Banks cannot state all charges in advance. Since charges can come under different names like processing fee, legal and technical charges, cost of stamp paper, GST, etc., ask them about the total cost associated with the loan,” says Aparna Ramachandra, founder and director, RectifyCredit. com. Banks usually insist on insurance for the home, an additional cost that you need to include in the calculation. Some Lenders Offer to waive these charges, but make sure the bank is not charging them indirectly.
Since these charges vary from bank to bank, it will be difficult to compare them. A better approach is to deduct these charges from your home loan amount and recalculate the cost effective. For example, suppose you are taking a home loan of Rs 50 lakh with a repayment tenure of 20 years and the total charges are Rs 20,000. at 7% interest rate, EMI 38,765 will work out to Rs. Since you have to make an advance payment of Rs 20,000, this is equivalent 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 cost is 7.05%, which is an additional cost of 5 bps. Once you calculate this for all lenders it will be easy to compare.
While the interest rate is important, borrowers should also consider the ease of getting the loan (the processing time taken by the bank). Ask friends or relatives about their experience with different banks. It is also wise to take a pre-approved home loan before taking your dream home.