Home Loan Hidden Charges

Along with interest rates, various charges associated with a home loan influence the amount you need to repay. Hence, it is important to get acquainted with the upfront costs and hidden charges when getting a loan.

Here is a description of the hidden charges associated with home loans:

• Home Loan Processing Fees

This is a charge that lenders levy to process your home loan application. Since processing can take time and require manpower, a home loan processing fee is one of the most common charges lenders levy. 

 

However, given the advancements, many lenders 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 fees and administration fees. 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

The home loan amount and interest are not subject to taxation by the lender. However, the home loan charges, such as processing fees, which lenders levy are subject to Goods and Service Tax, commonly known as GST. The GST rate 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. You need to pay these charges under the terms of legal fees. Ensure you know about such home loan hidden charges before applying for it.

• 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 an inspection fee.

• Conversion Fees

Lenders offer two types of interest rates – fixed and floating. Since interest rates affect your borrowing cost, you may want to minimise it. This would require you to shift or convert your interest rate from fixed to floating. 

 

To offer this facility, lenders levy conversion fees. This charge associated with the home loan can range anywhere between 0.25%-0.50% of the outstanding balance, depending on the lender.

• Prepayment Charges

Most lenders charge a home loan prepayment fee if you foreclose a loan or repay it before its tenure ends. You can either make a part prepayment or pay off the entire home loan amount. 

 

Making a prepayment means you save on interest. Hence, the lender charges a prepayment or foreclosure fee to compensate for the losses on the total interest amount.

• Late EMI Payment Charges

Like any other loan, 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

One of the hidden charges associated with home loans is the Statement of Account charges. Throughout 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 through a cheque, ensure you have sufficient funds to clear on the due date. If the cheque bounces, 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, serve time in jail, or both.

• MOTD Charges

One of the most prevalent additional charges on a home loan is the Memorandum of Deposit of Title Deed or MOTD. 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, you need to register the deed with the 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 up to 1% of the property’s value.

• Home Loan Documentation Charges

Once the lender signs off undertaking, they activate an Electronic Clearing Service (ECS). After that, the lender ensures to keep the sale deed and other relevant documents safe throughout the course of the tenure.

 

For this, the lender may employ a third-party vendor. They may charge you the cost of employing and offering the services in the form of document charges.

• Fee for Change of Home Loan Tenure

After getting a home loan, if you wish to increase or decrease the tenure, you need to pay a set charge. The amount payable differs from one lender to another as it depends on the financial institution’s policies.

• Home Loan Re-sanction Charges

Last-moment negotiations or other hurdles in the process can cause a delay in the disbursement of 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 will be required to pay a nominal charge.

 

Being aware of the home loan hidden charges will ensure that you do not get any unpleasant surprises once your home loan gets disbursed.