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Taking up a home loan is a long term commitment, and a thorough understanding of various home loan charges is essential. However, in a desperate bid to buy a home, many buyers’ sign up for home loans without knowing anything about the various hidden charges involved. In many cases, lenders too may not be upfront of the different charges involved. Here’s a comprehensive list of the various hidden home loan charges you must know about:
Before the Home Loan Is Disbursed
After the Home Loan Is Disbursed
Home Loan Processing Fees: Between the time frame of you submitting your home loan application and it being disbursed, the lender has to perform several tasks. One such task is the thorough and detailed verification of the documents submitted by you. This is what is called the processing of a loan. To cover the costs associated with it, the lender charges a processing fee. The fee could either be charged as a percentage of the loan amount or simply as a flat fee.
Home Loan Administration Fees: Some lenders charge home loan processing fees as a whole, while some split it into two- processing fee and administration fee. The processing fee is usually charged before granting the loan while the administration fee is levied after disbursing the loan.
GST on Home Loans: Although home loans are not under the scope of the tax regime, certain fees and expenses associated with it do attract a Goods and Service Tax. 18% GST is applicable on the charges associated with the likes of processing a home loan and home loan foreclosure.
Legal Fees: Lenders hire legal experts to fulfil requirements such as valuation of the property or the validation of the different documents etc. Hence, the charges acquired by the lender for the same will need to be borne by the applicant, which are nothing but the legal fees. Ensure that you are aware of these charges before applying for a home loan.
Inspection Fees: Lenders conduct a thorough inspection during the valuation process. The costs of hiring valuation experts are borne by the customer.
MOTD Charges: Memorandum of Deposit of Title Deed or MOTD is an undertaking provided by the applicant which states that the property has been pledged to the bank as per the customer’s own will to obtain a Home Loan. This document requires a stamp duty, which varies between 0.1% and 0.2% of the final loan amount.
Stamp Duty and Registration Charges: The sale deed and relevant property documents are kept safely with the lender until the loan is repaid in full. To formalise this arrangement, the buyer has to execute a Memorandum of Deposit of Title Deed (MOTD), which must be registered with relevant authorities. When this is done, the buyer has to incur anywhere between 0.10-0.20% as stamp duty and registration charges. The amount can vary from state to state.
Home Loan Documentation Charges: Acquiring a home loan generally involves furnishing the sale deed of the home. These are then signed off by the lender so that they can get the Electronic Clearing Service (ECS) 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, or they are given to a third party vendor. These tasks are chargeable, anywhere between ₹500-₹2000, which is passed on to the borrower. These costs are known as documentation charges.
Home Loan Tenure Change Charges: Home loan lenders allow alteration of the EMI payable by changing the loan tenure. In case you have additional funds, you can reduce the loan tenure and pay off the home loan faster. However, to do that, you will have to pay the tenure change charges.
Conversion Fees: Often borrowers wish to switch from a floating interest-rate system to a fixed one and vice-versa, hoping to reduce the overall EMIs. A borrower can only do so if they pay a conversion fee. Conversion fees can range anywhere between 0.50%-3%, depending on the lender.
Prepayment Charges: Most home loans have provisions for prepayment, i.e. closure of the loan before the tenure. You can either make part prepayment or pay off the entire home loan amount. However, prepayment means losses for the lender due to the loss of interest. Hence, the lender will levy prepayment charges on prepayment of home loan to make up for the losses.
Late EMI Payment Charges: Like any other loans, home loans also require timely payment of the monthly instalments. In case of late payment, the lender will charge you a fixed base penalty rate along with a percentage of the loan amount, which is outstanding as the late payment fees.
Statement of Account Charges: Each year, the lender provides an annual account statement free of cost. However, if you happen to lose it, you will have to pay a fee to get another one. Your lender may charge up to Rs 500 to provide another statement of account.
Home Loan Re-Sanction: When the lender approves your loan, you will be given a sanction letter from them. It states that the loan amount must be credited to your account within three months of the loan approval. But, there could be times when you are having second thoughts about the property or the seller withdraws from the deal at the last minute. If such a scenario arises, there is a possibility that three months will just pass by, rendering the sanction letter invalid. In such a case, the bank 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 and if it bounces, you will be asked to pay a penalty. The exact figure of the same will depend on the lender. If such a scenario arises, it is possible that the bank that the bounced cheque was in the favour of will file a complaint against the borrower under section 138 of the Negotiable Instruments Act. If this happens, the borrower may have to pay double the amount as penalty or serve time in jail or both.
Being aware of these charges will ensure that you don’t get any unpleasant surprises once your home loan has been sanctioned and disbursed. Moreover, by opting for a Housing Loan Online, you can enjoy multiple benefits like minimum documentation and processing time, flexible tenure, balance transfer facility, loan top-ups, part-prepayments and much more.