It always feels good to have your own home. Where there is the freedom to do anything you wish to do. When it comes to housing loans, most people resort to banks. Currently, the interest rate being charged by most of the banks all over the country is 6.65% annually. But there are a lot of other things which need to be given attention to when it comes to a home loan.
Choosing a home loan just because the interest rates are low would be a blunder mistake on the borrower’s part. There are a lot of hidden charges when it comes to home loans which increase the overall cost of borrowing drastically. Let us take a deeper look at them.
Roughly, the fees can be divided into the following:
Home loan processing fee
The processing fee is the most essential and obvious price levied on home loans. It is a cost that you must pay to banks or NBFCs in order for them to process your home loan application.
It is a one-time cost that is normally paid beforehand – that is, you must pay it to the bank/NBFC out of your own money rather than having it deducted from your loan amount. It's referred to as an administrative fee by some institutions. The processing fee is usually only collected after your application has been granted.
Home loan administration fee
This is a cost that is similar to the processing fee. While some banks simply charge a single processing cost, others charge two fees - a processing fee and an administration fee. The former is charged before the loan is approved, while the latter is charged after the loan is approved.
This is a non-refundable sum imposed by certain banks when you apply for a loan, even if your loan is not granted. It is also known as the administrative fee or application fee which costs between Rs. 2,500 to Rs. 6,500.
Stamp duty and registration fee
Registration fees and stamp duty are two such costs that the buyer must pay in addition to the purchase price. This is the cost of completing the formalities of purchasing a home. Banks, on the other hand, do not finance registration and stamp duty under home loans.
GST on home loans
Home loans are subject to an 18% GST across the country. VAT and service tax are no longer in effect. The interest rate has risen considerably. The interest rates on house loans will be raised by lenders and banks.
Interest on loans is exempt from GST. Service taxes were imposed on loans prior to the implementation of the GST. The rate of service taxes was 15%, while the GST rate was 18%. Some people may have believed that because there was a 3% increase due to the change in the tax plan, interest rates would be influenced as well.
Technical and legal assessment fee
The fees will differ based on the lender from whom you are borrowing. As a legal and technical evaluation charge, the bank would usually ask you to pay a fixed cost of between ₹5,000 and ₹10,000.
Home loan documentation charges
Lenders may impose a documentation fee of between ₹500 and ₹2,000 for signing all of the documents and activating the electronic clearing service (ECS).
There is also a price for paperwork. After the deed is recorded at the sub-office, the registrar's borrower submits the original selling paperwork to the bank. The bank branch then sends this paperwork to a central location, where it is stored safely throughout the loan term. Banks frequently hire other parties to complete this duty, for which they must pay additional fees. This price is subsequently passed on to the borrower.
Fees for change of home loan tenure
Assume you initially chose a 15-year repayment period because you could afford the monthly EMI. Now, if you need to prolong this term due to a wage cut or other financial difficulty, the bank will charge you a fee for doing so. The same is true if the term is cut short.
Loan conversion fee
Despite the Reserve Bank of India's (RBI) continued tweaking of policy rates to keep interest rates in the end-user's comfort zones, banks have been slow to pass on the rate decrease benefits.
While banks have been using the RBI-regulated repo rate benchmark to price their loans since October 2019, borrowers whose loans were previously connected to the MCLR regime will continue to service their loans using this benchmark alone. Worse yet, many elderly borrowers are still paying their mortgages at the base rate.
If a borrower approaches his or her bank to have his or her previous loan linked to the new lending benchmark, the bank will handle the request after charging a fee. The conversion fee is the name for this fee.
EMI late payment penalty
A borrower owes it to himself to pay his EMIs on time. A failure to do so would result in default, as well as monetary penalties. While some banks charge a fixed sum as a penalty, others charge a fixed percentage of the amount owed as a penalty. Customers who pay their interest or EMI late at HDFC will be charged additional interest of up to 24 percent per year.
Home loan prepayment charges
Those who have taken out a home loan with a floating interest rate will have no problems because the RBI has forbidden banks from charging such borrowers any prepayment penalties. Borrowers who have taken out a home loan with a fixed rate of interest, on the other hand, are not in the same boat. The bank will charge such borrowers a prepayment penalty on their house loans. This could be a set proportion of the total loan balance.
Charges for home loan account statement
If you discover that another lender is offering you better services at a lower interest rate at some point during your loan term, you may be tempted to switch your house loan to them. Before processing your home loan transfer request, the new bank will look at your payments history.
You must visit your home branch to obtain a copy if you do not have any documentary proof of the same. The bank charges a little fee to provide this service. Keep copies of the original document on hand for future reference and usage.
Home loan re-sanction charges
Following the bank's approval of your house loan application, the borrower must typically have the sanctioned amount disbursed within three months of receiving the sanction letter.
If the borrower fails to meet that deadline, the sanction letter's validity will expire, and the bank will be forced to re-sanction the loan. If the seller pulls out of the contract at the last minute, a situation like this could occur.
This may also occur if the customer has reservations about the builder from whom he is purchasing the apartment. In such circumstances, the borrower will be required to pay a fee to use the services once more.
Cheque bounce charges
If a payment is made to the bank via check and the check bounces, the borrower will be required to pay a penalty. Each time a check is dishonoured at HDFC, the bank costs ₹200.
Also, the bank to which the cheque was issued has the right to file a complaint under Section 138 of the Negotiable Instruments Act if the check bounces. You could face a jail sentence, a penalty of double the amount, or both as a result of your actions.
Incidental charges on a home loan
The borrower may also be asked to pay an incidental charge to offset the risk of default. Incidental charges and expenses, according to HDFC, are assessed "to reimburse the fees, charges, expenses, and other money that may have been expended in connection with the recovery of dues from a defaulting client."
It would be naive on the borrower's behalf to merely choose the bank with the lowest interest rate on house loans. The total cost of borrowing a large quantity of money rises dramatically as a result of the different hidden charges, and a wise borrower should avoid being caught off guard by the bank on this front.
Because banks may charge the borrower for some of these charges as and when they arise during the loan's term, the borrower should make sure that his budget accounts for these additional expenses.