Buying your dream home is an inspiring journey, but your excitement may quickly become marred when you learn about the hidden charges on your home loan.

Banks and NBFCs offering home loans shroud the details of hidden charges in mystery. While you have a rough idea about monthly payments and the interest, some sneaky charges are hiding around the corner that may surprise you. This handy guide details all the hidden charges you must be prepared for to get as close to transparent home loans as possible.

1.   Loan Processing Fees

Lenders levy these fees to cover the administrative costs of processing home loan applications and finalizing the loan disbursement. Look at the breakdown of the standard processing fees:

• Credit report fee - Lenders may levy a small fee to access your credit report to verify your creditworthiness. Typically, the fee is between Rs.500 and Rs.1,000.
• Application fee - The lender charges a one-time fee to initiate your loan application. Generally, the cost ranges from 0.5% to 1% of your loan amount.
• Processing fee - This fee covers the expenses incurred by the lender for analyzing your financial profile, underwriting the loan, and verifying the documents. The processing fee can be a percentage of the loan amount or a flat fee. It may range between Rs. 2,000 to Rs. 10,000 or even higher depending on the loan amount and lender.

Please note that paying the loan processing fee does not guarantee your home loan application will be approved. This fee is non-refundable.

2.   Administration Fee

This is a variant of the processing fee. Some banks only levy a processing fee, while others split it into processing and administration fees. The former is charged before the home loan is sanctioned, and the latter is charged after the loan is sanctioned.

3.   Documentation And Legal Charges

In the home-buying process, several documentation and legal charges are involved.

• Documentation charges - There might be government charges associated with the stamping and registration of various documents like the mortgage deed and sale agreement. Typically, these fees are a percentage of the property value, ranging from 1% to 3% depending on the state.
• Legal fees - You may need to pay lawyer fees for services like preparing legal agreements (mortgage deed, sale deed), reviewing property documents, and representing you during registration. These fees vary depending on the complexity of your case and the experience of the lawyer you have hired. Legal fees generally range from Rs. 5,000 to Rs. 10,000.

4.   Property Valuation Charges

The lender will need a valuation of the property you purchase to determine the loan amount they will offer. The valuation fee is paid to a certified valuer and may range from Rs. 2,000 to Rs. 10,000, depending on the location and value of the property.

5.   Conversion Fees

The conversion fees is one of the most prevalent hidden charges associated with home loans. This fee comes into play when the borrower wishes to lower the interest rate during the loan tenure.

For example, suppose you have secured a 12% loan with a 2% markup and 10% base rate. With time, the bank lowers the markup rate to 0.50% for new customers, offering home loans at a rate of 10.05%, but you continue to pay 12%. You can talk to your lender to lower the markup rate you are paying. However, please know that this adjustment will incur conversion fees from the bank, which usually range between 0.5% to 1% of the outstanding loan amount.

6.   Gst Charges On Fees

While the loan amount remains outside of the purview of GST, administrative fee, processing fee, legal and technical assessment fee, and so on, fall under the ambit of this tax.

This tax is levied by the government and charges at a rate of 18% on processing fees and other fees. So, when calculating the total cost of your home loan, don’t forget to factor in GST on the associated fees.

7.   Late Payment Fee

Missing your EMI will result in a late payment fee or penalty. Some banks charge a fixed penalty amount, while others charge a fixed percentage on the installment due as the penalty.

Don’t forget to inquire about or find out about the late payment fee before submitting your loan application.

8.   Prepayment And Foreclosure Charges

Prepayment and foreclosure charges are not always hidden charges because some lenders disclose them upfront in the loan agreement or during the loan application process.

However, if these charges are not revealed to you upfront and buried deep into complex terms and conditions, it is best to clearly ask the lender regarding these charges.

Please note that inquiring about these charges is essential because some lenders do charge a prepayment penalty if you pay off a portion or all of your loan before the end of the term (usually applicable to fixed-rate loans). They also charge a foreclosure penalty if you default on your loan and they are forced to repossess the property (applicable to floating rate and fixed-rate loans).

9.   Incidental Charges

Lenders may ask you to pay an incidental charge to cover the risks if you default on payments. These charges vary according to the loan amount and lender.

10.  Cheque Bounce Charges

If you have made payments through a cheque to the bank and your cheque bounces, you will have to pay a penalty.

Also note that if the bank in whose favor you have issued the cheque files a complaint under Section 138 of the Negotiable Instruments Act. Then, you might have to serve a jail term and/or pay a penalty of double the amount.

11.               Loan Re-Sanction Charges

Once your home loan application is sanctioned by the lender, you have to get the sanctioned amount disbursed within three months from the date of the issuance of the sanction letter. If you are unable to stick to the deadline, the validity of the letter expires. The lender will have to re-sanction the loan and you will be asked to pay the fee for availing the services again.

Summary Of The Hidden Charges Of Home Loans

Tips To Minimize Hidden Charges

• Shop around to get quotes from several lenders and compare processing fees and interest rates. Whenever possible, negotiate fees.
• Ask for an inclusive quote, including all the potential charges.
• Clarify prepayment charges if you plan to prepay your loan fully or partially.
• Carefully review home loan documents to understand the charges levied.
• Consider online lenders offering lower processing fees and no hidden charges.
• Ask questions! A transparent lender won’t be afraid to address your concerns and give you a realistic picture of the amount you must pay for the home loan.

Homeownership comes with an array of challenges. Don’t let the hidden costs of home loans be one of them.

By understanding these hidden costs, you can factor them into your budget and avoid financial surprises (shocks!) down the road.