Here is a list of 15 home loan hidden charges that you should be aware of…
Home loans are one of the most widely availed loans and well-regulated as compared to other loans. However, home loans are not free from hidden charges which are built into the total loan amount sanctioned.
Such hidden charges carry no guidelines nor they are regulated. These charges vary from bank to bank, and there is no transparency on how such charges are fixed
Some of these charges are added to the total loan amount sanctioned and recovered from EMIs. Due to such practice,
- You have to pay interest on these hidden charges as well as they are added to your loan principal.
- Since these charges are included in the loan eligibility calculation, the actual amount funded by the loan for home purchase gets reduced.
Sometimes the hidden charges add up to a considerable amount that can affect your cash flow or can increase the cost of house purchase.
It is prudent to check not only the hidden charges that are applicable at the time of loan disbursal but also during loan tenure.
Let us understand what the common hidden charges of a home loan are:
Your bank or financing institution will charge you a fixed amount or a percentage of the loan amount you have requested as processing the charge.
Usually, application fees, administration fees, and loan processing charges are clubbed and charged as processing fees. The processing fee is either a fixed fee or 0.5%-1% of the loan amount.
You can get a home loan sanctioned even if you have not finalised a property by paying the processing fees. In case, you do not avail the loan within a stipulated time; the processing fee is forfeited.
2.Credit Score Checking Charges
Though many credit scoring agencies provide one free credit report of a person every year, many banks charge fees to get your Credit Score and determine a suitable loan and interest rate for you.
You can check with your lender and get a waiver on this charge.
These charges are for preparing the loan agreement, the collection of supporting documents, getting ECS mandate activated and for other formalities.
This is usually a fixed fee in the range of Rs.1000-Rs.5000 depending on the loan amount requested.
Your home loan lender will get all the documents related to the property you have finalised, such as previous sale deeds, khata, inheritance records, land ownership records, government records related to the land parcel etc., verified by a legal expert.
Your home loan will not be disbursed unless the lender is completely satisfied with the legal status of the property.
This is usually a fixed fee in the range of Rs.5000-Rs.10000.
5.Valuation or Technical Charges
Your lender will appoint an expert who will evaluate the property finalized by you. The expert will assess the land value, the structure in case you are buying a ready to move in property. If you are purchasing an under-construction property, the expert will analyse the facilities and quality of the utilities promised and assess the current value of the property.
Through this, your lender will assess if the loan amount you have requested matches with the value of the property as determined by the expert.
6.MODT charges (Registration of Deposit of Title Deed)
You have to sign a memorandum that you have deposited all the title deeds with the bank willingly. You have to pay stamp duty and register this document. The above stamp duty varies from state to state. However, it may be in the range of 0.1 to 0.2% of the home loan amount.
In case the borrower defaults on payments, the lender has the right to take over the property using the title deeds. The above charges included in a home loan are applicable when you avail the loan from your lender.
Now, let us understand the charges that are applicable during the loan tenure.
This is the amount you have to pay to change your home loan package, i.e. to move your loan to a different rate of interest during loan tenure.
Assume that you have a home loan with a fixed rate of interest as 10%. During the loan tenure, your bank may offer a rate of interest of 9% to new customers. To move to this new interest rate, you have to pay a conversion fee of 0.5-1% of the loan amount.
8.Changing Loan Tenure
Banks usually charge a fee for reducing your EMI amount.
Some banks, however, request you to pay a lump sum to reduce the EMI and also maintain the same loan tenure.
9.Copy of original documents
Your bank will take possession of all the original documents including the sale deed. If you need a copy of the originals during the loan tenure, banks might charge you for the same.
Pre-payment charges are applicable for fixed-rate home loans or loans availed under special schemes. Some banks charge you if you pre-pay by availing funds from third-party sources.
However, pre-payment charges are not applicable for floating rate loans.
If you want to refinance your loan from another lender, the current lender will charge a fee for preclosing the loan.
This charge is usually calculated as a percentage of the outstanding loan.
12.Late Payment Charges
A late payment fee is charged by the banks if you delay any payment of EMI.
This charge usually includes a fixed amount + a percentage of the monthly interest payable.
If you fail to pay EMI for a month or so, the banks have to recalculate your loan parameters and redefine the EMI and the principal to recover the costs.
Also, in case a borrower defaults, the banks may auction the property to recover the dues. The costs for all these processes is charged as recovery fees.
14.Document Retrieval Charges
The title deeds of your property are stored in a central repository which may or may not be in a city you reside. Charges are levied to retrieve these documents after closure or pre-closure of your loan.
15.Pre-EMI or Interest recovered before entire loan is disbursed
Until you fully avail the total loan amount sanctioned, your lender won’t recover the actual EMI amount calculated (including principal + interest) on the loan.
Instead, the lender will charge you only interest on the loan amount disbursed until then. The actual EMI and the calculation of loan tenure start only after the entire sanctioned amount is disbursed.
If you observe that during the loan tenure, charges are applicable on pre-payment, for document retrieval or on switching the lender.
Though it is not lawful, most home financiers force customers to purchase insurance to cover their home loan. This type of insurance usually carries a very high premium and is added to the loan amount. You can avoid buying home loan insurance and instead buy a term insurance plan in which the risk cover is equal to the total loan you have availed.
Also read: Should you Buy home loan protection plan
Many of us tend to ignore the fine print while availing a home loan. You should not only check the charges that are levied while availing a loan but also check what charges are applicable for any service required during the tenure of the loan.
Hidden charges may increase your interest outgo and decrease the funding you can get for your home purchase. So, before you apply for a loan with any lender, make sure you go through the fine print to catch the hidden monsters.