All set to take up a home loan after due diligence and caparison of multiple quotes on interest rates and EMIs? Have you thought of comparing the miscellaneous and other lesser-known charges while comparing various home loan offers available to you? Many home loan borrowers often end up skipping these details. Prospective loan seekers many a time just use interest rate as the basic yardstick to compare various home loan deals.
A home loan has many other components that can dent you financially and selection of a loan should be done only after active comparison of all such costs.
Here are a few known home loan charges one should know before taking up a home loan:
Processing fee: A processing fee is one of the most obvious charges applicable for all loan borrowers. The applicable processing fee varies from one bank to another. While each bank and NBFC (non-banking financial company) is free to decide on their loan processing fee, the charges usually range between 0.25 per cent and 1 per cent of the loan amount. Some banks put a cap on a maximum of Rs. 5,000 for processing fees, and it varies from branch to branch.
The important thing to know about the loan processing charge is that it needs to be paid along with the loan application itself and is non-refundable even if your loan is not sanctioned due to any reason. Banks use the money collected as processing fee charges to verify your documents and complete various loan-related formalities. Some banks, however, offer various schemes whereby they offer zero loan processing charges for a limited period.
If you have been offered a lesser amount than what you applied for, the excess processing fees collected would be refunded in most cases.
Pre-payment charges: Paying off the loan either entirely or in parts before the end of the loan tenure is considered as pre-payment of the loan. While there are no pre-payment charges applicable on home loans with a floating rate of interest, as per Reserve Bank of India norms, lenders do charge some penalty for home loans with fixed interest rates if the borrower wants to prepay the loan. The penalty charges vary from bank to bank but hover around 2 per cent of the outstanding balance at that time.
MODT charges: Memorandum for deposit of title deed or MODT is applicable for all home loan borrowers. It is essentially an undertaking given by you that you are depositing the title documents of the property with the bank at your own free will in return for a loan. For some banks, apart from the loan agreement, the undertaking needs to be registered and the government levies a stamp duty towards registration charges. Stamp duty charges vary from one state to the other, but on an average, charges of 0.1 per cent to 0.2 per cent of the home loan amount apply.
Legal and technical verification fee: Once you submit your property documents with the bank, the bank has to undertake a process to get the documents verified legally. Banks have a team of legal and technical experts, or outsourced agents, who verify the submitted documents for each loan applicant and initiate technical inspection for the property. For some banks, the processing fee is inclusive of these charges while some others charge this separately. In case you are seeking a property that is from a project approved by the same bank, then the legal charges are usually waived off.
Loan conversion fee/switching fee: If you have taken up a home loan with a floating rate of interest but now want to switch to a fixed interest rate or vice versa, the bank will charge a loan-switching fee to facilitate such a request. While charges vary from bank to bank, most banks on an average charge 2 per cent of the outstanding loan amount to facilitate such a switching as requested. In recent years, such switching fees are more prevalent for fixed-to-floating than the other way around.
Late payment charges: If you are a home loan borrower, make sure you follow your EMI due dates diligently. Banks and NBFCs charge a late payment charge for every delayed EMI. On an average, late payment charges can vary from Rs. 200 to Rs. 500 plus 2 per cent additional interest as penalty.
Besides these, other loan related charges pertain to loan statements, foreclosure letters, duplicate copies of no objection certificate/no due certificate, etc. All applicable charges will be mentioned in the loan document, and a thorough perusal before signing will help preempt unpleasant surprises later in the day.