Since home loans are taken over a long period, the most excellent care should be taken while choosing one. While interest rates are the first and foremost aspect that all borrowers look at when evaluating options, many are unaware of, and equally important, several associated charges.
A Few Hidden costs associated with home loans
Mode for repayment
Usually, borrowers request their lender to change their current repayment mode to pay their home loan respectively. Some prefer the ECS mode, while others find it simpler to use the post-dated cheque method. However, certain lenders charge a fee for changing the loan repayment mode from ECS to cheque or vice versa. Generally, this fee goes up to ₹ 500 per swap depending on the lender.
Franking charges/Stamp duty
Many lenders charge franking fees, which are usually referred to as stamp duty fees when handling the home loan application. Stamp duty is a tax charged on some monetary activity involving the transfer of the rights of a property by the state government (the state in which the property involved is located).
Charges involved in switching the rate
Borrowers frequently ask their lenders to adjust, switch or lower their Home Loan Interest Rate
for different reasons. Borrowers may request a transfer of Home Loan Interest Rate
from the base rate to the MCLR, from fixed to floating rates, or from a higher floating rate to a lower floating rate. Lenders can also set a frequency cap, i.e. the number of times over the tenure of the loan that a borrower may make such a request. Such conversions or switches often entail a specific cost varying from lender to lender. This rate conversion fee typically goes up to a maximum of 2 percent of the principal amount outstanding, or as per the cap imposed by the lender.
Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) is India’s central online security interest registry. Such an entity aims to deter fraud from happening due to numerous loans taken from separate lenders against the same asset (property). The organization maintains a central register of all the equitable mortgages along with lender and borrower’s information. On CERSAI’s website, prospective lenders can verify whether the property is not burdened by a pre-existing protection interest generated by any other lender.
Within 30 days of its establishment, lenders must register information of the security interests they have generated with the CERSAI. The home loan borrower then pays a nominal cost for this process. The organization has set the charges at ₹ 50 for loans up to ₹ 5 lakh, while for loans over ₹ 5 lakh, the fee is ₹ 100.
EMI Overdue charges
Whenever an EMI is missed or postponed by the borrower, or some sort of default is committed, then the borrower is liable to pay penalties for those acts. Late payments incur punitive interest rates on the outstanding dues (over and above the prevailing interest rate on loan), which can be as high as 24 percent p.a. (2 percent per month).
So, one should only opt for a home loan, if you are confident about repayment and avoid hefty fines.
Charges for EMI bounce
Failure to hold enough funds in your bank account to pay your monthly EMI on the set date will incur extra costs, whether you have been repaying via the ECS mode or PDCs. For such defaults, lenders bill up to ₹ 500 (which varies). If you dishonour the EMI at some point in time, the lender will charge some penalty. It may vary per instalments from ₹ 250 to a certain percentage of the recovery amount. Not only will this add extra costs, but the credit score will also be impacted.
Charges for Account Statement
Your loan account’s annual account statement is free of charge, but if you need another statement, then the bank may charge you up to ₹ 500 for producing the statement.
The shift of balance/Resale home loans
Borrowers will pay a certain amount as conversion charges if they wish to transfer the balance from one lender to another lender or from one loan system to another.
Also, assume if you applied for a floating rate loan during the loan application period and now you choose to change it to a fixed-rate loan or vice versa, you will be charged this amount.
Documents retrieval costs
These costs are levied at the time of loan closure/loan pre-closure. These are the charges for moving original papers from the central archive to the borrower.
At a central repository, the loan and property records are stored in secure custody. For instance, if you have taken a home loan at the Noida branch of the bank and its central repository is in Lucknow, then the loan and property records are retained in Lucknow.
If you are an NRI, then the Indian Embassy or a local notary available overseas must notarize you and your Power of Attorney’s (POA) KYC information.
Some lenders often charge a certain amount as a documentation fee for maintaining the papers such as loan agreement, ECS mandate, etc. Lenders usually charge the documentation fee about ₹ 500 – ₹ 2000.
Legal and technical evaluation charges
This fee is charged by certain lenders to scrutinize legal records, such as purchase deed, etc. Some can include this price in the processing fee.
Your lender will closely scrutinize the property you want to purchase. They will send an advisor, a bank employee, an architect or an engineer to visit the site to verify the project’s legitimacy and valuation. They judge the property on a variety of factors, such as building age, construction quality, etc.
A housing loan is an effective method of asset building with a liability. You put down some of your cash (the down payment) and gear the rest wisely (i.e. someone else pays for it in advance, you pay it back in instalments).
Remember to buy the insurance cover for the loan and also raise the contingency reserve to ensure ample liquidity for at least 3 EMIs.
Similarly, you can request advice from our professional financial planning team if you are concerned about your finances and do not know where to proceed.