Neeta and Harish were buying a new home and like any diligent buyers, they took a lot of efforts to ensure they were doing everything right. After getting all checks for above list, they thought they were all set for their home. But they had not figured in about the charges every home loan applicant needed to pay and be aware of.
Some of the charges that are applicable on a home loan are
Application Fee: This is the fee charged to an applicant for processing his/her application. This amount ranges anywhere between Rs 500- Rs 1000 depending upon the lenders. Remember this fee is payable even if the home loan application is accepted or rejected. Therefore it is good to make your own research about the lender even before applying.
Processing Fee: Banks charge some amount to process your loan. This will include checking your credit score and other background verifying work that the bank will need to do before approving the loan for you. This depends on the quantum of loan applied for, so processing charges are always charged at a certain percentage of the loan.
For Ex: HDFC Bank home loans are charged 0.50% of the loan amount or INR 11,800, whichever is minimum. So for a Rs 50 lakh loan, the processing fee will come up to Rs 25,000. This fee is dependent on the loan amount. So, if you are sanctioned a loan amount which is lower than what you have paid for, the processing charges are refunded for the unsanctioned amount.
Memorandum of Deposit of Title Deed: A home loan is sanctioned at the condition that your home remains mortgaged to the bank till you clear all your dues. This requires you to deposit your title deeds like the Sale Deed/ Sale agreement of the property with your lender. For this, an undertaking needs to be signed and registered by your end. For registering this document, stamp duty ranging between 0.1%to 0.2% of the loan amount is payable. This varies depending upon the state in which the property is located. Going by the above example of Rs 50 lakh loan, this stamp duty should be between Rs 5000- Rs 10000.
Additional Reading: How do I calculate home loan eligibility?
Legal and Inspection Fees: Proper documentation of property records still remains a grey area in the country. When you apply for a home loan for properties other than the ones where there is a pre-existing tie-up between the builder and the bank or is a pre-approved property, your lender will need to verify the legality of the property and inspect the property before sanctioning the loan. This becomes very important when a high-value property or land is being purchased for construction of a house.
Document Retrieval Charges: When you obtain a loan, all title deed documents are deposited with the lender who in turn deposits in with a Central Repository. As and when you prepay the loan or close the loan, these documents will need to be retrieved from the repository and returned to you. This involves a cost called the document retrieval charges.
Prepayment penalties: RBI has abolished prepayment charges for all floating rate loans. However, fixed-rate loans still continue to carry a prepayment penalty, which could sum up to about 2% of the amount being prepaid. Similarly, if you want to switch from a fixed rate loan to a floating rate one or vice versa, there are charges involved in doing the same.
Additional Reading: 5 Factors That Determine Your Home Loan Tenor
Late payment fee: Any loan is granted on the premise that all EMI will be promptly paid. In case of a delay in payment of EMIs, the lender has right to charge a late payment fee. This could range from Rs 200 -Rs 500 plus additional 2% interest as a penalty. Though the penalty or the fee may not be much, always remember that delay in payment of EMI will affect your credit scores.
The loan agreement contains all information about these charges. It is a good practice to go through the document before signing on the dotted line. Also, it is good to know about these charges so that you know what you are being charged for