Listed below are 15 hidden costs linked with house loans in India. Banks are already offering house loans with annual interest rates as low as 8.35%, making it probably the greatest time to buy a home using housing financing. Borrowers should not merely choose the bank with the lowest interest rate for their home loan. The total cost of borrowing a large sum of money rises dramatically due to the different hidden fees. A prudent borrower should ensure that the bank does not catch him off guard on this issue.

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It is important to note that banks may collect some of these costs as and when relevant, at any moment throughout the loan’s tenure; the borrower should ensure that his budget includes these additional expenses.

Miscellaneous charges associated with home loans
Before the loan is disbursed	After the loan is disbursed
Processing fee	Stamp duty & registration charges
GST	Change of home loan tenure
Administration fee	Documentation charges
Credit score report	EMI late payment penalty
Technical/legal assessment fee	Loan Conversion
Incidental charges	prepayment charges
	Home loan re-sanction
	Cheque bounce penalty
	Loan account statement

Home Loan Processing Fee

During the time between when you submit your loan application and when the bank approves it, the lender must conduct various duties to execute your request. Bank personnel will thoroughly check the authenticity of your application and the documentation related to it. To do this activity, the bank charges the customer a processing fee. While some banks charge a percentage of the home loan amount for processing, others charge a flat cost.

• SBI, for example, charges 1% of the loan amount, with a minimum of Rs 1,000 & a maximum of Rs 10,000 as a processing fee.
• Borrowers at HDFC must pay up to 0.50% of the loan amount or Rs 3,000, whichever is greater, as a processing charge. Banks may also waive processing fees to entice borrowers.

Paying a processing fee does not ensure that your loan application will be granted. Because this amount is non-refundable, the borrower will not be able to obtain a refund if the lender rejects the home loan application.

Home Loan Administration Fee

This price is a variation of the processing fee. Some banks charge only one levy known as the processing fee, while others charge both the processing cost and the administrative fee. The former is charged before the loan is sanctioned, whilst the latter is charged later.

Stamp duty & registration charges.

When the selling deed is recorded with the sub-registrar, the lender receives the original paperwork to maintain as security until the borrower has fully returned the house loan. To formalize this arrangement, the buyer signs a memorandum of deposit of title deed (MODT) outlining the facts. This document, which must be registered, is subject to stamp duty and registration charges imposed by state regulations. While prices vary by state, the buyer will pay 0.10%-0.20% of the loan amount in stamp duty and registration fees.

GST on house loans.

When banks provide you a home loan, they provide you with a slew of ‘services’ that fall under the purview of the Goods and Services Tax (GST) regime. Despite the fact that the loan amount is exempt from this tax, GST is levied on the processing, administrative, technical, and legal assessment fees, among others.

Technical/legal evaluation charge for property

As the bank processes your house loan request, it hires a third party to do the legal & technical verification of the property to determine two facts:

• The lender uses the legal assessment to determine whether the property is free of encumbrances and has no legal complications about its ownership.
• The lender uses the technical assessment to determine whether the property is worth the price being paid for it and whether the bank should provide the loan amount requested by the borrower.

Because this task requires legal and technical specialists, whom the banks hire, the borrower is required to shoulder the expense of the legal and technical examination. Most banks charge a set cost for this service. High-value properties are frequently subjected to many rounds of technical & legal review, resulting in greater fees.

“Fees on account of external opinion from advocates/technical valuers, as the case may be,” at HDFC, are payable on an actual basis based on the circumstances of each individual case. According to the bank, such fees are due directly to the advocate or technical valuer concerned for the type of the service offered.

A home loan borrower should get a full breakdown of the legal fees he is charged and verify that it is included in the loan agreement.

Home loan documentation fees.

Lenders may impose a paperwork fee ranging from Rs 500 to Rs 2,000 for signing all documents and activating the electronic clearing facility.

There is another documentation fee. The borrower submits the original selling document to the bank once the deed has been registered at the sub-registrar’s office. This document is then sent by the bank branch to a central location, where it is kept safe throughout the loan period. Banks frequently use third companies to complete this entire operation, for which they must pay additional fees. This charge will eventually be transferred to the borrower.

Fee for changing house loan tenure.

Suppose you first chose a 15-year repayment period because you could afford the monthly EMI. If you need to extend this tenure due to a wage decrease or other financial difficulty, the bank will charge you a fee for modifying the tenure. The same holds true if you shorten the tenure.

Credit score report charges

Your credit score will determine whether or not the bank approves your home loan request. If you want the bank to provide you a copy of your credit score so you may assess your chances of securing the loan, the bank may charge a fee for a copy of the credit report generated by the credit bureau.

Loan Conversion Fee

Even though the Reserve Bank of India (RBI) continues to adjust policy rates so that interest rates remain within end-user’s comfort zones, banks are hesitant to pass on rate cuts. While banks have been using the RBI-regulated repo rate benchmark to price their loans from October 2019, a borrower holding a loan tied to the former MCLR regime will continue to service it using just this benchmark. Worse, many senior borrowers continue to finance their house loans using the base rate regime.

Now, if a borrower approaches his bank to get his previous loan matched to the new lending benchmark, the bank will process the request but charge a fee. This amount is referred to as the conversion fee.

EMI late payment penalty

A borrower is obligated to pay his EMIs on schedule. Delays in doing so would result in default and monetary fines. While some banks charge a specific amount, others charge a fixed percentage of the amount owing as a penalty.

At HDFC, late payment of interest or EMI will result in the consumer having to pay up to 24% in additional interest each year.

Home loan prepayment charges

Those who have taken out a home loan with a floating interest rate have no concern because the RBI has forbidden banks from imposing a prepayment penalty on such borrowers. However, this is not true for borrowers who have a fixed-rate house loan. The bank will apply a home loan prepayment penalty to such debtors. This could be a set proportion of the outstanding loan amount.

Charges for Home Loan Account Statement

If you discover at any point during your loan term that another lender is providing you with superior services at a cheaper interest rate, you may be tempted to switch your house loan to the new bank. However, the new bank will first review your repayment history before approving your house loan transfer request. If you do not have any documentary confirmation of this, you must contact your home branch to obtain a copy. To provide this service, the bank charges a little fee. Keep a copy of the original document for future reference and use.

Home loan re-sanction fees

After the bank approves your house loan application, the borrower is usually required to have the sanctioned amount disbursed within three months of receiving the sanction letter. If the borrower fails to meet that deadline, the sanction letter expires, and the bank must re-sanction the loan. Such a scenario could occur if the seller withdraws from the transaction at the last minute. This could also occur if the customer begins to have concerns about the builder from whom he is purchasing the apartment.

In such circumstances, the borrower will be charged a price to use the services again.

Cheque bounce charges

If any payments are paid by cheque to the bank and the cheque fails. The borrower will be required to pay a penalty. HDFC charges Rs 200 for each case of cheque dishonoring.

Also, the bank in whose favour the cheque was issued may submit a complaint under Section 138 of the Negotiable Instruments Act if the cheque bounces. As a result, you may face a jail sentence, a doubled penalty, or both.

Extra charges on home loans

Banks may also require the borrower to pay an incidental charge to cover the risks associated with defaults. According to HDFC, incidental charges and expenditures are collected ‘to reimburse the fees, charges, expenses. And other amounts that may have been expended in connection with the recovery of dues from a defaulting customer’.

Late payment.

This is the penalty assessed for late or missed loan installments. Be aware of late payment fees and, if applicable, grace periods.

Loan cancellation charges

Find out if the bank where you applied for the house loan will charge you a fee if you cancel the loan application after it has been approved but not yet disbursed.

What are some strategies for avoiding unwanted charges?

• Read the fine print. Review the agreement and request any clarifications. If necessary, seek the advice of a financial specialist to grasp the intricacies.
• Request a comprehensive breakdown for any money that is being billed to you.
• Always compare home loans from multiple lenders and negotiate to get the best offer.

 

 

 

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