Hidden Charges in Home Loan

Home is a place that gives you emotional warmth. The growing real estate price has, however, made buying a property a daydream for most of us. Home Loan is the most convenient way, which brings you closer to your 'dream abode’.

Well, you need to be exceedingly careful while you decide to avail a Home Loan. The financial organisations (Banks, NBFCs) will not tell you about many hidden charges. The initial charge that you come across while applying for a home loan is the processing fee. There are, however, several hidden charges in a home loan that you would come to know afterwards. In this article, I tried to cover few home loan hidden charges that you may come across at various stages of your loan tenor.

The banks and other finance lenders are constantly working to find newer ways to make more money out of a borrower.  There are actually no clear cut guidelines regarding Home Loan hidden charges. Banks keep changing the explanation as per their convenience. In India, regulatory bodies are turning blind towards Home Loan hidden charge and transparency is taking a back seat. Let’s go through some of these Home Loan hidden charges.

Conversion Fees

The most regular among all Home Loan Hidden Charges is the Conversion Fees. It is the amount you need are expected to pay to cut your Rate of Interest (ROI) during the loan tenure. Let’s consider that you availed a home loan @ 12% i.e. Base Rate of 10% + 2% markup. Now during your loan tenure, the bank reduced mark-up for new customers to 0.25% and thereby offering home loans @ 10.25%. You are, however, still paying 12%. Now if you wish to lessen your ROI only by reducing mark you need to pay the bank a conversion fee. It generally varies from 0.5% to 1% of your outstanding loan amount.

MODT Charges (Memorandum of Deposit of Title Deed)

Memorandum of Deposit of Title Deed (MOT) is an undertaking by the borrower that he has submitted the title documents of the property to the bank or NBFC at his own wish and will. It is given as a security to the financer. Govt levy stamp duty on this document to register the same. Charges vary from state to state. Generally, it is 0.1% to 0.2% of Home Loan amount. It is one of the most parts of the Home Loan hidden charges.

Document Retrieval Charges

This is the charge levied at the time of loan closure/pre-closure. It is principally a cost of transferring original documents from central document repository to the borrower. Usually, all original documents received by banks or the NBFC  are divided into 2 parts (a) Important documents like Sale Deeds, Sale Agreement etc and (b) General Documents like Search report, Tax bill, NOC from association etc. The first sets of documents are kept in safe custody at the central repository. General Documents are usually kept at Loan Location.
 
Suppose you availed Home Loan from a Bank in Kolkata and the central repository of that bank is in Mumbai; all essential documents will be shifted to Mumbai and general documents will be in Kolkata. When the loan is closed, the financer would charge document retrieval charges to transfer documents from Mumbai to Kolkata. First class courier service providers are used for safe transfer. These charges are generally included in processing fees.

Administrative Charges

Most people have a tendency to confuse it with Processing Fees. Some banks charge administrative charges separately while some take it as a part of the processing fee. This is a charge levied to recover administrative cost of processing the application. If we define precisely; then processing fees refer to the front end cost like DSA cost etc while an administrative charge is levied for back-end processing of the loan application. Bank at times might waive off processing fees.

Legal Fees

There are few Banks with no in-house lawyers to validate the legal status of the property. They engage lawyers (external) for this job. The fees of these lawyers are taken from customers under the head Legal Fees.

Valuation Fees / Inspection Fees

Before sanctioning the loan, physical inspection of the property is done. This is done to decide the property valuation. It is done to make certain that bank is not over lending. In the case of default, the bank needs to recover their dues by auctioning the property. There are Civil Engineers to evaluate the property. The charges incurred for the process are recovered by the customer as Valuation Fees.

Documentation Charges

To approve a Home loan the financer necessitates a lot of documentation; say, for example, Home Loan agreement, MODT, Indexing etc. Despite the fact that standard formats are used still there are charges involved in completing these documentations.

Switching Loan Package

Suppose you availed floating rate of interest for your Home loan at the time of application and now you wish to switch to fixed Home Loan or vice versa. In such cases, the lender would charge usually 1% of outstanding loan amount to process your request.

Changing Loan Tenure

If you to wish to increase/decrease your loan term that change your Equated Monthly Instalment (EMI) anytime during the loan tenure the Bank would charge fees for the same.

Statement of Account

One annual account statement is given at no cost. However, in case you request for another statement from the bank; they might charge up to Rs 500 per statement.

Copy of Original Documents

It is recommended to keep 2-3 copy of original documents before submitting to the bank. In case you appeal for a photocopy from the bank then they might charge for same. Charges vary from Rs 2 per page to Rs 1000 for the entire set.

Late payment charges

In case you fail to pay your EMI within the set date, a late payment charge will be levied by the bank @ 2% per month on the deferred time period with a minimum of Rs. 500 penalty. 

Recovery Charges

In case you default on payment the bank will charge to complete the cost of recovery i.e. Recovery Charges from you. Charges are generally Rs 250/instalment. 

Pre-Payment Charges

Well, pre-payment charges are abolished but only for candidates availed for floating home loans. Some banks charge a pre-payment penalty if funding is not from own source. In the case of 3rd party funding or Balance Transfer (take over by other bank); Pre-Payment penalty is applicable. 

Don’t fail to notice the clauses mentioned in the home loan agreement and end up paying several hidden costs. Understand the details of all hidden costs at the time of loan processing and avoid inconveniences at a later stage. Be a Smart Real Estate Investor!