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Tuesday, January 12, 2016

Costs involved in Property Mortgaging

 

Costs involved in mortgaging

 

Mortgaging can be defined as availing a loan against the security of a real estate property. Such loans are known as mortgage loans. A mortgage loan or a loan against property can be availed for various purposes including construction or purchase of a house, renovation or furnishing of a house, funding business needs, meeting educational, medical and other expenses.

The process of availing loan against mortgage of property involves some costs over and above interest to be paid at the agreed rate. These include:

1. Processing and administrative charges: To avail of a home loan the borrower needs to pay money by way of processing fee, also called Upfront Fees or Administrative Fees. Although these fees are low as compared to the quantum of loan but at times they appear significant (especially in case of big ticket loans). These expenses go towards the initiation of the loan process. This one-time charge is usually between 0.5% to 2% of the loan amount applied, depending upon the bank or housing finance company (HFC). These days the processing fee is 0.5% for most banks.    

2. Technical and legal fee : Some banks also charge for securing an independent legal opinion on issues like the owner's title to the property and an independent property valuation report. There could also be charges for examining technical aspects of a property like adherence to sanctioned plans.

3. Commitment charge : This charge is generally 1 per cent of the loan amount and is recovered by the PLI if a borrower does not withdraw the committed loan amounts  within the stipulated period.

4. Prepayment charge : This is usually 2 per cent of the outstanding loan amount and also depends on stipulated terms in the home loan agreement. It is recovered from the borrower if he/she pre-pays the loan.

5. Legal Fee: If the title of the property to be mortgaged is not clear and marketable, most of the major financial institutions would refrain from giving a loan against such property. Thus, it is necessary to ensure that all the documents pertaining to the property are clear and unencumbered. However, if the title is not clear, the lending institution will conduct a check on the said property for the verification of title. The lawyer/advocate on the panel of the lender that clears the title of the property, charges the end-user a legal fee. The legal fee ranges from Rs. 500-5000 depending upon whether it is a direct allotment by the development authority, resale, second or third sale and other factors such as the standing of the lawyer. 
      
Reputed Solicitors / Law Firms normally charge by the hour, at rates ranging from Rs. 1000- 5000. One may also find lawyers/ Firms who charge flat fees (upto 1 to 1.5% of the transaction costs) for specific services, such as preparing documents and doing the Title verifications.         

6. Valuation Fee: This fees is meant to be paid by the borrower to the valuer for valuating the cost of the property. Generally, valuation fee ranges from Rs 500-1000 and for very high value transactions, it can be up to Rs 2,000. While some banks/HFCs charge this separately and some include this in the processing fees of 0.5% of the loan amount.

7. Insurance Charges: Most of the banks generally do not provide this facility of insurance coverage of the property financed and the life of the borrower. If a borrower wants to insure himself then he may opt insurance from the available options in the market or with the insurance company with  which the bank has a tie up.

8. Transactions Relating to Documentation: After completing property search and finance arrangements for the selected property, certain documents for ownership are to be prepared in respect of the property to be mortgaged. Charges for such document creation are to be paid by the  borrower.

9. Stamp Duty on Mortgages: Stamp Duty is a tax, similar to sales tax and income tax collected by the government, and is supposed to be paid in full and on time. A stamp duty paid instrument/document is considered proper and a legally valid instruments. It gets authentic evidence for value and stands scrutiny in courts. The stamp duty varies from 4% to 13.5% across cities. In certain states, there is a rebate for registering the property in the name of a woman.

 

Stamp Duty and Registration Charges across various States and Cities 

Sr. No

State

City

Stamp duty to be calculated on the value of the property in %age

Registration Fee Excl-Vat/cessin %age

1.

Delhi

Delhi

6%-Male
4%-Female

Rs. 100/-

2.

Maharashtra

Mumbai

Nil for up to Rs.1,00,000/-

0.5% of the value for Rs. 1,00,001/- to Rs.2,50,001/- 

Rs.1,250 + 3% of the value above Rs.2,50,000/- For Rs. 2,50,001/- to Rs.5,00,001/- 

Rs.8,750 +5% of the value above Rs.5,00,000/- For Above Rs. 5,00,001/-

1% min Rs. 1000/-
Max Rs. 30,000/-

3.

Tamil Nadu

Chennai

6%

1%

4.

Karnataka

Bangalore

7.01%

1%

5.

Andhra Pradesh

Hyderabad

5%

0.50%

6.

West Bengal

Kolkatta

7.01%

1%

7.

Gujarat

Ahmedabad

4.90%

1.50% Nil- Women

8.

Haryana

Chandigarh

8% - Male non HUDA
6% - Female non HUDA
7% - Joint Registration 
6% -  Male HUDA
4% - Female HUDA
5% - Joint Registration

Rs. 5,000/-

9.

Madhya Pradesh

Indore

10.3% - Male
8.3% - Female
9.3% - Joint Registration

0.8%

10.

Punjab

Ludhiana

8.3% - Male
6.3% - Female
7.3% - Joint Registration 
8.3% - Senior Citizen
8.3% - Company

1%

11.

Orissa

Bhubaneswar

11%

2%

12.

Maharashtra

Pune

Nil for up to Rs.1,00,0001/-

0.5% of the value for Rs. 1,00,0001/- to RS.2,50,0001/- 

Rs.1,2501 + 3% of the value above RS.2,50,001/- For Rs. 2,50,001/- to Rs.5,00,0001/- 

Rs.8,750 +5% of the value above Rs.5,00,000/- For Above Rs. 5,00,0001/-

1% min Rs. 1000/-
Max Rs. 30,000/-

13.

Uttar Pradesh

Lucknow

8%

Rs. 5000/-

14.

Kerala

Kochi

13.5% - Corporation area
12% - Municipal area
10% - Panchayat area

2%

15.

Rajasthan

Jaipur

7.5% - Male
6% - Female
7.5% - Joint Registration 
7.5% - Senior Citizen
7.5% - Company

1%

16.

Tamil Nadu

Coimbatore

6%

1%

10. Registration Charges: While mortgaging a property, a mortgage deed is signed between the lender and the borrower, which needs to be registered. The registration of mortgage deed involves a fee that varies from 1 to 3% of the loan amount.

11. Due-Diligence and Documentation Preparation Charges: Such charges typically involve due-diligence and vetting of property papers by legal experts to check the authenticity of titles. Document preparation charges  basically involve document drafting charges payable to the advocates/lawyers, liasioning expenses incurred with the Government authorities. These are usually collected on the lump sum basis. The charges vary from Rs. 1,250 to Rs. 12,500 across cities in India. The higher the value of the transaction, the greater are the charges to be paid.        

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