What are fore closure charges?

By | March 15, 2011

Foreclosure charges are the loan closing costs/additional fees associated with the closing of a loan, most often in case of a mortgage loan or home loan. These may include the costs of legal formalities, inspections, penalty fee, etc. In some cases, the payment of loan closing costs may be negotiable.

Although the ministry of finance has recently suggested public sector banks to waive off foreclosure charges on housing loans, major banks are not yet ready to accept the move. According to them most of the foreclosure of the loan is for shifting the loan to another financial institution.  Apart from that, closing of bigger loans will lead to the asset-liability mismatch for the banks. In such conditions the banks have to find alternative sources to compensate such shortages. There fore banks suggest that at least a small penalty charge is required.

The source of cash flow which is used for foreclosure of the mortgage loan or home loan is the main factor that is looked into while deciding on the foreclosure charges. The cash flow for the transaction must be the borrowers own source. Generally a small percentage of the amount used for foreclosure is decided as penalty.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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