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Last updated on 26th February 2024
Buying a home is a big step, and understanding the costs is key. When we talk about home loans, there are many home loan fees and charges that come into play. It's not just about borrowing money; there are additional costs like mortgage charges for home loan and processing charges for home loan. These might sound complicated, but don't worry! We're here to break it down for you. By the end of this guide, you'll have a clear picture of all the charges and be ready to make your dream home a reality. Let's dive in!
Table of Contents
- Processing Charges
- Administration Charges
- CERSAI Fee
- Unraveling EMI-Related Charges in Home Loans
- Closing Note
1. Processing Charges
When you're all set to make your dream home a reality, it's essential to grasp the financial bits. Among these, the home loan processing fee takes center stage. This fee, often called a processing charge, is what banks or Non-Banking Financial Companies (NBFCs) ask for to handle your home loan application. Let's break it down into simpler terms and explore the key points.
Think of the processing fee as a one-time expense you need to understand. It's not like other fees that you can pay from the loan amount – you've got to take care of it upfront. Some banks might call it an "administrative fee." Remember, this fee only comes into play after they've given your application the thumbs up.
- Diverse Approaches to Banking
Many banks incorporate a processing fee into their home loan offerings. However, certain financial institutions may not levy this fee, or they might occasionally waive it. Additionally, some banks differentiate their charges based on your employment status, whether you're salaried, self-employed, or pursuing an independent venture.
- Processing - Fees Refundable or Non-Refundable?
The processing fee, once paid, is non-returnable. However, there's a silver lining. This fee facilitates the smooth functioning of housing finance operations. It covers the expenses associated with evaluating applicants and managing the necessary documentation. Though it's non-refundable, it's essential for efficient processing.
- Clarifying a Common Misconception
Many assume that once the processing fee is paid, their home loan is guaranteed. However, this isn't the case. Financial institutions evaluate various factors, such as eligibility and credit score, before approving a loan. Thus, even after paying the fee, there's no assurance of loan approval if you don't align with their criteria.
Suggested read: Home loan pre-closure charges
2. Administration Charges
When you apply for a home loan, the bank wants to make sure everything about the property is okay. So, they ask outside experts to check the property's legal and technical details. These experts create a report, and they charge the bank for this work. Now, instead of the bank paying for it, they ask you, the loan applicant, to cover this cost. This cost is called 'administration charges'. Sometimes, this charge is included in the home loan processing fees, but some banks might ask you to pay it separately. This report is super important because it helps the bank decide if they should give you the loan or not.
3. CERSAI Fee
In the Indian home loan landscape, the CERSAI fee, also known as the memorandum of deposit of title deed (MOD) charge, is a pivotal component. CERSAI, which stands for Central Registry of Securitisation Asset Reconstruction and Security Interest, is a centralized online registry established by the Government of India. In the past, some people tried to trick banks by taking multiple loans for the same property from different banks. To stop this, the CERSAI system was set up. It's like a big online diary that notes down which properties have loans against them. When you apply for a home loan, you pay a small fee to add your property details to this diary.
Suggested read: Top Housing Finance Companies
4. Unraveling EMI-Related Charges in Home Loans
When you take a home loan in India, the monthly repayments, known as EMIs, are just one part of the picture. There are several other charges that come into play during the loan tenure. Let's delve deeper into these charges:
- Late Payment Fees
Every time you delay your EMI payment, the bank imposes a penalty. This is to encourage borrowers to maintain discipline in their repayments. It's always advisable to set up automatic payments or reminders to avoid these unnecessary charges.
- Pre-payment Charges
If you come into some extra money and decide to pay off a part or all of your loan earlier than planned, you might be charged a fee. This is especially for fixed interest rate home loans or those taken from non-banking financial companies (NBFCs). However, many banks with floating interest rates have now waived off these charges, making it easier for borrowers to close their loans early.
- Fee for Document List (LOD)
When you take a home loan, the bank keeps all the original documents related to your property. If you ever need a copy of these documents during the loan tenure, the bank might charge you a fee, usually ranging between Rs. 200 to Rs. 500. However, a smart move would be to keep photocopies of all documents before handing over the originals.
Suggested read: Home loan disbursement process
5. Closing Note
Buying a home is a significant decision. Understanding the various fees and charges tied to home loans is crucial. These fees help banks process your loan and check the property's details. However, if you have the right knowledge, you can minimize or avoid some fees. Always ask your bank about all charges and understand them fully. With the right information, you can step into your dream home without any financial surprises.
FAQs About Different Types of Home Loan Charges
Home loans have various charges like processing fees, loan-related fees (login fee, prepayment charge, late payment fee, conversion charge, etc.), document-related fees (stamping charge, NOC charge, etc.), and legal/government fees (legal fees, valuation fee, MOD charge, CERSAI charge).
The processing fee is generally a percentage of the loan amount. Banks might also specify a minimum and/or a maximum amount chargeable. Additionally, GST is charged on this fee.
No, the processing fee is a one-time charge, usually paid upfront when your home loan application is approved.
Closing costs include various charges like prepayment charges, document retrieval charges, and others. The exact amount varies by bank and the specifics of the loan.
Legal fees cover expenses related to the creation of home loan agreements, including drawing up agreements and certifying documents. The exact amount is based on the charges by the legal advisor/lawyer.
Some lenders may give a partial refund on the processing fee after withholding a portion if they reject a home loan application. The refund policy varies by bank.
Some banks offer waivers on processing fees during special promotions. It's also essential to read the loan agreement and negotiate with the bank to understand and potentially reduce certain charges.
Banks provide a detailed breakdown of all charges in the loan agreement. It's essential to go through this and use tools like EMI calculators and processing fee charts provided by banks to understand the total cost.
Published on 22nd August 2023