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.