Home Loan Hidden Charges

The fees and charges associated with your home loan can substantially increase the overall borrowing cost. Carefully review hidden home loan charges like processing fees, administrative costs, prepayment penalties, and insurance premiums. Doing so helps you plan your finances better and avoid unexpected expenses.

Home loans involve certain upfront charges to cover administrative, legal, and processing tasks required to sanction your loan. Take the following fees into consideration so you can avoid surprises and financial strain. 

• Home Loan Processing Fees

A home loan processing fee is a charge that lenders levy to process your home loan application. Since processing can take time and require considerable effort, this fee is one of the most common charges imposed by lenders.

With advancements in banking, many lenders now offer home loans without a processing fee. For those that do charge it, the fee is usually either a percentage of the loan amount or a flat sum.

• Home Loan Administration Fees

Some lenders combine all charges into a single processing fee, while others split them into two components: processing fees and administration fees. The processing fee is typically applied before the loan is approved, whereas the administration fee is charged after the loan is sanctioned.

• GST on Home Loans

The principal home loan amount and the interest payable are not subject to GST. However, certain fees, such as processing fees, administrative fees, documentation charges, and other applicable services, are subject to the Goods and Services Tax (GST). The GST rate is currently 18% of the applicable fee.

• Legal and Inspection Fees

Lenders hire legal and technical experts to verify property documents, assess ownership, and determine the property's market value. These checks are conducted before approving your loan.

You usually bear the charges for these services, including legal and inspection fees. The cost can vary based on your property’s complexity, value, and the lender’s policies.

• MODT Charges

One of the common additional charges on a home loan is the Memorandum of Deposit of Title Deed (MODT). This document records the lender’s interest in your property until the loan is fully repaid. MODT charges vary across states and typically range from 0.10% to 0.50% of the loan amount.

• Stamp Duty and Registration Charges

You register the MODT with the relevant authorities to record your lender’s interest in the property. You must pay stamp duty and registration charges, which are government-imposed fees separate from the lender’s charges. These charges vary by state and generally range from 0.5% to 1% of the property’s value.

• Home Loan Documentation Charges

Once the lender signs the undertaking, they activate an Electronic Clearing Service (ECS). Following this, the lender ensures that the sale deed and other relevant documents are kept safe throughout the loan tenure.

Your lender may hire third-party vendors to manage this process and pass the cost of their services on to you as documentation charges. These charges can vary, typically ranging from around ₹500 to ₹2,000.

• Home Loan Re-sanction Charges

Last-minute negotiations or other hurdles in the process can cause a delay in disbursing the sanctioned loan amount. In such cases, the validity of your loan’s sanction letter may expire. The lender will then have to re-sanction the loan, for which you may be required to pay a nominal charge.

Even after disbursal, a home loan carries hidden costs that can add up over time. Knowing these ongoing charges lets you make informed decisions, minimise extra costs, and retain full control of your financial journey.

• Late EMI Payment Charges

Like any other loan, home loans also require the timely payment of monthly instalments. In case of late payment, the lender will either charge a fixed base amount or a percentage of the outstanding amount as late payment fees.

• Statement of Account Charges

One of the hidden charges associated with home loans is the Statement of Account charge. During the tenure of your home loan, the lender will provide an annual account statement free of cost. 

However, if needed, you can request an additional copy by paying a small fee. The charge can vary as per the lender.

• Cheque Bounce Penalty

If you are paying your home loan EMIs by cheque, ensure that you have sufficient funds to cover the amount on the due date. If the cheque bounces, you will be required to pay a penalty. This amount varies depending on the lender.

In severe cases, the bank in whose favour the cheque was issued may file a complaint under Section 138 of the Negotiable Instruments Act. In such cases, you may be liable to pay penalties. These penalties may include repaying the cheque amount, paying fines, or even facing imprisonment.

• Charges for Changing Home Loan Tenure

After obtaining a home loan, if you wish to increase or decrease the tenure, you will need to pay a fixed charge. The amount payable depends on the financial institution’s policies.

• Conversion Fees

Lenders offer two types of interest rates – fixed and floating. Upon choosing one at the time of application, you may want to shift your rate to minimise the cost of borrowing. To provide this facility, lenders levy conversion fees. This charge can range up to 0.50% of the outstanding balance, depending on the lender.

Closing a loan before its scheduled tenure can involve certain fees that protect the lender’s interests. Understanding these charges can help you plan your early repayment strategy and reduce unexpected costs.

• Prepayment Charges

Most lenders levy a home loan prepayment fee if you foreclose a loan or make a part-prepayment. Both these moves help you save on interest. Therefore, the lender charges a prepayment or foreclosure fee to compensate for the potential loss of interest income.

• Recovery Charges

If the lender initiates legal or recovery proceedings to recover outstanding dues, it applies additional recovery charges. These charges cover expenses for debt collection, legal notices, and other actions required to resolve defaulted payments.

Lenders often ask for property insurance to safeguard their interest in the home being offered as collateral. These costs include premiums for policies covering your home’s structure, personal belongings, or construction materials.

• Paying for Property Insurance

You may choose to pay insurance premiums separately or have them collected by the lender along with your monthly EMI as a combined payment.

• Homeowners Insurance

Homeowners insurance protects your home’s structure and personal belongings. Lenders often make it a loan requirement, and you can pay the premium annually or as part of your EMI.

• Additional Coverage Options

You can add coverage for risks like floods or earthquakes, depending on your property and location. Some policies also cover liability or temporary loss of use.

• Construction and Builders’ Risk Insurance

If your home is under construction, lenders may require builders’ risk insurance. This policy protects the structure, materials, and equipment from fire, theft, or natural disasters until construction is complete.

Avoid unexpected costs and maintain financial control throughout your repayment journey by knowing all charges associated with your home loan. Here are practical steps to safeguard yourself and be informed:

• Pay Attention to Terms and Conditions

Read every clause in your loan agreement carefully. Identify when additional fees apply, such as for late payments, changes in tenure, or early repayments.

• Compare Offers from Multiple Lenders

Research and compare home loan options from various banks and NBFCs. Look for transparent fee structures and competitive rates to secure the best deal. On Bajaj Markets, you can review loan terms from various lenders and choose one that fits your needs.

• Examine Loan Documents Thoroughly

Review all documents, including loan estimates and agreements. Focus on detailed sections listing fees and charges to understand your exact financial obligations. Usually, the Most Important Terms and Conditions (MITC) document contains all the applicable charges listed in a table. 

• Seek Clarifications from Your Lender

Ask your lender to explain any unclear terms or charges. Clear communication helps you avoid unexpected expenses later.

• Consult Experts

Engage financial advisors, real estate agents, or legal professionals for guidance. Their expertise helps you spot hidden charges and navigate the loan process confidently.