15 Home Loan Hidden Charges

Taking a home loan is a big financial decision, as it is a long-term commitment. If you want to purchase a home via a loan, then you must get acquainted with the many home loan charges. 

In some cases, lenders may not be upfront about the different charges involved. 

Not being aware of what’s what can make your repayment challenging, putting your finances and home in jeopardy. 

So, read on for a comprehensive list of the various hidden home loan charges you must know about:

• Home Loan Processing Fees: As the name suggests, this is a charge that lenders levy to process your home loan application. To process your application, lenders conduct a thorough and detailed verification of the documents you submit.

   

  This is the first thing that lenders do when they receive your application. Since the processing can take time and would require manpower too, a home loan processing fee is one of the most common charges that lenders levy. 

   

  However, given the advancements, there are many lenders who offer a home loan without any processing fee. But the ones that do would either charge a percentage of the loan amount or a flat fee.

• Home Loan Administration Fees: Some lenders charge home loan processing fees as a whole, while some split it into two, namely, processing fee and administration fee. The home loan processing fee is usually applied before your loan gets approved. On the other hand, lenders levy administration fees after disbursing the loan amount. 

• GST on Home Loans: Although home loan amount and interest are not subject to taxation by the lender. The home loan charges, such as processing fees, that lenders levy are subject to Goods and Service Tax, commonly known as GST. The rate of GST is 18% of the amount. 

• Legal Fees: Lenders hire legal experts to fulfil requirements such as the valuation of the property or the validation of different documents etc. The charges for this go from your pocket under the terms of legal fees. Ensure that you are aware of these charges before applying for a home loan.

• Inspection Fees: Before approving your application, lenders inspect your property through experts to gauge its value and assess other legalities. For this, lenders charge what is called inspection fee.

• Home Loan Tenure Change Charges: If you get an increment or additional funds, you may use the funds to reduce your tenure. To carry out this process, the lender will levy a small fee. The same is applicable if you want to increase your tenure.

• Conversion Fees: Lenders offer two types of interest rates – fixed and floating. Since interest rates affect your borrowing cost, you may want to take up opportunities that allow you to minimise it. This would generally require you to shift or convert your interest rate from fixed to floating. 

   

  To offer this facility, lenders levy conversion fees which can range anywhere between 0.50%-3%, depending on the lender. Be sure to read about this in the terms and conditions to avoid being blindsided when you put in your conversion request.

• Prepayment Charges: Most home loans have provisions for home loan prepayment, i.e. closure of the loan before the tenure. You can either make a part prepayment or pay off the entire home loan amount. Making a prepayment means you save on interest.

   

  However, it translates into losses for the lender due to the loss of interest. Hence, the lender will levy additional charges as prepayment charges or foreclosure charges, depending on whether you make a partial or full prepayment. 

• Late EMI Payment Charges: Like any other loans, home loans also require 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: Throughout the tenure of your home loan, the lender will provide an annual account statement free of cost. However, you can request an additional copy, if needed, by paying a small fee. The charge will vary across lenders and is mentioned in the terms and conditions.

• Home Loan Re-Sanction: When the lender approves your loan, you will be given a sanction letter from the banks or NBFCs. It states that the loan amount must be credited to your account within three months of the loan approval. 

   

  But, if you are having second thoughts about the property or the lender withdraws the deal for any reason beyond the sanction letter’s validity, the offer will become invalid. If you want to get the funds, the lender will have to re-sanction the loan, for which you will be charged.

• Cheque Bounce Penalty: If you are paying your home loan EMIs through a cheque, ensure you have sufficient funds for the cheque to clear on the due date. If the cheque bounces, i.e., does not get cleared, you will have to pay a penalty. The amount of the same will depend on the lender.

   

  In extreme cases, the bank that the bounced cheque was in favour of will file a complaint under section 138 of the Negotiable Instruments Act. If this happens, the borrower may have to pay double the amount as a penalty or serve time in jail or both.

• MOTD Charges: Memorandum of Deposit of Title Deed or MOTD is a term for the deed created to mortgage on your property for the purpose of getting a loan. In simple terms, it is a document recording the lender’s share over your property until you repay the loan. 

   

  MOTD charges for home loans vary from one state to another and are generally between 0.10% – 0.50% of the loan amount. 

• Stamp Duty and Registration Charges: When a lender creates an MOTD, the deed has to be registered with relevant authorities. The registration process is subject to charges which you have to pay. The charges may vary depending on the state. However, generally, it is between 0.10% - 0.20% of the loan amount. 

• Home Loan Documentation Charges: Once the undertaking is signed off to the lender, Electronic Clearing Service (ECS) is activated. After that, the sale deed and the other relevant documents are sent to a central location where they are kept safely throughout the course of the tenure. For this, the lender may employ a third-party vendor and the cost of employing and offering the services gets charged to you in the form of documents charges. 

   

  Being aware of these charges will ensure that you don’t get any unpleasant surprises once your home loan has been sanctioned and disbursed. By opting for a housing loan online, you can enjoy multiple benefits like minimum documentation and processing time, flexible tenure, home loan balance transfer, loan top-ups, part-prepayments and much more.