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Last updated on 8th February 2024
Buying your own home is a dream come true! It’s about picking out the perfect spot for your comfy couch, deciding the color of your bedroom walls, and imagining the joy of having friends over for a weekend BBQ.
10 Home Loan Hidden Charges
But before all these exciting plans turn into reality, there's a little mountain to climb called 'getting a home loan'. Now, while you might have a rough idea about the interest and the monthly payments, there are some sneaky little charges hiding around the corner that could surprise you. Our handy guide is here to walk you through these hidden charges, so there are no unpleasant surprises on your way to getting your dream home.
- Home Loan Application Fee
- Processing Charges
- Legal Verification Charges
- Technical Evaluation Fee
- Stamp Duty and Registration Charges
- Conversion Fees
- Prepayment and Foreclosure Charges
- GST on Home Loans
- Late EMI Payment Charges
- Home Loan Documentation Charges
We’ve listed 10 charges, from home loan application fees to registered mortgage charges, to give you a clear picture of what lies ahead. Let's take a look at this easy-to-understand guide and get you one step closer to homeownership!
1. Home Loan Application Fee
The home loan application fee is your first financial encounter on the journey to securing a home loan. This fee is levied by the lending institution to cover the costs incurred in processing your loan application. It acts as a gateway for lenders to initiate the verification process, which is essential to determine your eligibility for the loan.
This fee includes reviewing your credit history, evaluating your income, and assessing the authenticity of the documents provided. Secondly, it acts as a token of commitment from prospective borrowers, showcasing their genuine interest in obtaining the loan.
2. Processing Charges
As indicated, processing fees of home loans are a common levy by lenders to cover the detailed verification of your submitted documents. This fee is calculated as a percentage of the loan amount, typically ranging between 0.25% to 1%. Even before the property is finalized, it's crucial to understand this fee, since it plays a significant role in sanctioning your loan.
Suggested read: Home Loan Foreclosure Charges
Ensure to account for the processing fee while budgeting for your home loan. This proactive approach will provide a clearer picture of the initial financial commitment required.
3. Legal Verification Charges
The essence of legal verification lies in its ability to provide a clear chit on the property's legitimacy, ensuring that the title is free from any legal disputes or encumbrances. This verification acts as a safety net, protecting both the lender and the borrower from future legal entanglements concerning the property.
Legal charges are generally stipulated and fall within a range of INR 5,000 to INR 10,000. These charges are a small price to pay considering the legal assurance and peace of mind they bring along. However, they are an additional cost that applicants need to factor in while budgeting for their home loan.
Suggested read: Home Loan fees in India
4. Technical Evaluation Fee
If your property is under construction or is a part of a lesser-known project, a technical evaluation to assess the construction quality and project viability is requisite. Technical charges are fees you pay to get an expert to check the value of the property you want to buy with a home loan. This expert will look at the property and decide how much it's worth to make sure it matches up with the loan amount you're asking for. If the property is still being built, the expert will also check the plans to see if it will be a good place to live once it's finished.
These charges are important because they help the bank figure out if the loan amount you want makes sense with the value of the property. So, when you're planning your home loan, remember to ask your bank about technical charges and keep them in mind when you're working out your budget.
5. Stamp Duty and Registration Charges
Stamp duty is a government tax imposed on the home loan agreement, which could be a substantial amount demanding a place in your budget. These Charges are like a government tax on your home loan paperwork. When you buy a house with a loan, the bank keeps some property documents as a safety till you pay back the entire loan.
A special paper called Memorandum of Deposit of Title Deed (MODT) is made, and on this, the government charges a small fee, known as stamp duty and registration charges. Usually, you might have to pay around 0.10% to 0.20% of your loan amount for this. It's important to remember this charge while planning your home loan budget, as it makes your loan agreement official and legally recognized.
6. Conversion Fees
One of the prevalent Home Loan Hidden Charges is the Conversion Fees, which come into play when you wish to lower your Rate of Interest during the loan tenure. For instance, suppose you secured a home loan at a rate of 12%, composed of a Base Rate of 10% plus a 2% markup.
Over time, the bank lowers the markup to 0.25% for new customers, offering loans at a rate of 10.25%, yet you continue to pay at 12%. You can reduce your Rate of Interest by lowering the markup from 2% to 0.25%. Still, this adjustment will incur conversion fees from the bank, typically ranging between 0.5% to 1% of the outstanding loan amount.
Suggested read: Home Loan Balance Transfer
7. Prepayment and Foreclosure Charges
Pre-payment charges can be a little tricky in the realm of home loan fees. For those with floating home loans, the good news is that pre-payment charges have been abolished. However, it's not the same sunny scenario for everyone. Some banks have a pre-payment penalty in place if the funding comes from a third party, like another bank taking over the loan. This penalty also applies to fixed home loans or loans that are part of special schemes. So, if you're considering paying off your loan early, it's wise to understand the pre-payment charges that might apply, especially if you have a fixed rate or have third-party funding.
8. GST on Home Loans: An Additional Charge to Keep in Mind
When you take a home loan, the actual loan amount and the interest you pay aren't subject to Goods and Service Tax (GST). However, some of the home loan fees and charges, like the processing fees, do attract GST. This tax is levied by the government and is a part of the revenue collected from goods and services. In the context of home loans, GST is charged at a rate of 18% on various fees like processing fees, which are incurred during the loan processing phase. So, when you're calculating the cost of your home loan, remember to factor in the GST on the associated fees, as this will add to the overall cost of your loan.
9. Late EMI Payment Charges
Just like any other loan, home loans necessitate the timely payment of monthly installments (EMIs). However, life can throw unexpected circumstances your way, leading to a delay in the EMI payment. These charges can either be a fixed amount or a percentage of the outstanding loan amount, varying from lender to lender. It's imperative to be aware of these charges as they add to the mortgage charges for home loan that borrowers need to bear.
10. Home Loan Documentation Charges
Ensuring the safe custody and accurate recording of your home loan documents is a crucial step taken by banks, which comes with its associated cost known as the Home Loan Documentation Charges. Once you've signed off the undertaking to the lender, the Electronic Clearing Service (ECS) gets activated. Post this activation, your sale deed along with other pertinent documents are transported to a centralized location where they are securely stored for the entire loan tenure. This meticulous process often necessitates the involvement of a third-party vendor, who is entrusted with the responsibility of safeguarding these critical documents.
Homeownership comes with an array of charges, some obvious and others hidden in mortgage loan agreements. Having a comprehensive understanding of these charges, including everything from the home loan application fee to registered mortgage charges, ensures a more informed, less tumultuous home loan journey. Armed with this knowledge, you're now better positioned to decipher the costs entailed, making your dream of homeownership a less costly reality.
FAQs about Home Loan Hidden Charges You Should Know About
HDFC charges a processing fee of 0.5% of the loan amount or Rs 3,000 (whichever is higher), plus applicable taxes. Additionally, there might be other charges such as prepayment charges, although specific details on all hidden charges are recommended to be checked on HDFC's official website or contacting them directly.
Home loans primarily cover the purchase price of the property. However, some may also include costs for renovations, repairs, or even furniture in certain cases. Additionally, costs like processing fees, legal fees, and other administrative charges are part of the home loan process but are usually paid separately and not covered by the loan amount.
Administrative charges are levied to recover the administrative cost of processing the loan application. They are separate from processing fees and cover the back-end processing of the loan application.
Hidden bank fees could include charges for account maintenance, ATM usage, overdraft fees, late payment fees, and other service fees that may not be clearly disclosed upfront.
Legal fees cover the cost of legal services required to verify the property's legal status, including ownership verification, title search, and other legal due diligence. These fees are usually paid to external lawyers hired by the bank.
To avoid additional bank charges, it's crucial to read and understand the terms and conditions of the loan agreement, maintain a good credit score, pay EMIs on time, and inquire about all possible charges before finalizing the loan.
Whether furniture cost can be included in a home loan depends on the lender's policies and the type of loan. Some home improvement or renovation loans may allow for furniture costs to be included.
Published on 26th October 2023