Hidden Fees That Are Costing You Lakhs on Your Home Loan

Purchasing a home is everyone’s dream, but financing it with a home loan can be full of unforeseen expenses. However, if you carefully plan your equated monthly installments (EMIs) and interest rates, banks and financial institutions like to sneakily charge hidden amounts that can secretly accumulate to lakhs of rupees over the loan period. These fees are not always disclosed openly, causing most borrowers to pay much more than they had hoped.

Knowing these secret costs can assist you in making wise financial choices and keeping your home loan as affordable as it seems. If you are seeking affordable housing finance, it is critical to know the lesser-known charges that can add up and increase your repayment load.

So, what are we waiting for? Let’s jump in to explore the secret charges on your home loan that might be silently burning a hole in your pocket.

Home loan processing fees

Did you know that the lender is charging a processing fee prior to sanctioning your home loan? This amount can be anywhere between 0.25% to 2% of your loan and the same is non-refundable.

The processing fee is for administrative expenses, documentation, and verification.

Please note that:

• Some lenders charge a minimum fee, which renders the smaller loans for more costly.
• Some lenders also require a pre-application fee, exclusive of the main processing fee.
• Private lenders also include GST or service tax on top of the processing fee, and this makes the cost higher.

Remember, you must always read the fine print and negotiate with your lender. You can also look for lenders that offer discounted processing fees during festive seasons.

Technical verification and legal fees

To secure the market value and genuineness of the property, banks conduct technical and legal checks. Although this is a requirement, it involves a heavy charge. This charge usually goes undercover as administrative charges.

The fees can be between ₹5,000 to ₹25,000 based on the property and lender.

Pro tip: Opt for lenders offering these services at a nominal rate. Or you can talk to your lender and convince them to include these charges in the processing fee.

Penalties on prepayment and foreclosure

Prepaying loans is a good idea if you want to reduce your total interest outgo. Unfortunately, not all lenders allow borrowers to prepay loans without a significant charge. Some of them impose hefty penalties.

Whereas floating-rate home loans do not face foreclosure penalties, fixed-rate loans incur penalties up to 5% of the outstanding loan balance. Even banks and NBFCs impose penalties on a partial payment exceeding a threshold.

So, you need to carefully study your loan agreement and keep an eye out for these hidden clauses.

It would be best to choose a lender that does not impose prepayment penalties and offer flexible repayment options.

Loan conversion fees

Conversion charges are the most prevalent of all the concealed home loan fees. This is the fee you have to pay to reduce your rate of interest throughout the loan period.

Now, while banks frequently offer lower interest rates to new borrowers, they expect existing customers to continue paying a higher rate. If you wish to reduce your rate of interest, you might have to pay a conversion fee that ranges from 0.5% to 1% of your outstanding loan amount.

Before you opt for an interest rate conversion, make sure to calculate your actual savings.

Penalties for late payment

Lenders charge a significant penalty when borrowers fail to meet an EMI due date. Hidden within complex bank procedures are the penalties for late payments. Some lenders charge a flat rate, but others charge 2% to 4% extra interest every month on the outstanding amount.

Please know that repeated late payments are not only costly but also adversely affect your credit score. So, do not forget to pay your EMIs on time!

MODT charges

MODT (memorandum of deposit of title deed) is a document on record that supports the property that you have hypothecated for your home loan. MODT fees are obligatory government-charged fees, comprising stamp duty fees and perhaps even other fees of registration.

Regrettably, lenders hardly mention these fees while negotiating a loan.

Pro tip: Bring up these charges with your lender and find out whether they are included in your loan processing fees.

Home insurance charges

Several lenders make home insurance policies mandatory because they want to protect their interests. While this is essential, some lenders bundle expensive policies into the loan agreement. As you may have guessed, there’s a lack of disclosure that results in increasing the cost of the loan.

Franking charges

Franking charge refers to a fee that banks or NBFCs levy for stamping property documents. Although the fee is less compared to usual stamping, it is essential to inquire from your particular lender.

Franking fees differ from state to state but are typically between 0.1% and 0.2% of the loan.

If these charges are not being made known to you, find out from your lender. You can also request that your lender give you the breakdown of charges prior to signing the loan agreement.

NOC, statement, and account maintenance charges

Obtaining NOCs (no-objection certificates), loan statements, or even balance inquiries may incur service charges that you are unaware of. Some banks charge up to ₹500 per statement, and depending on how many times you update your loan statement, the cost can quickly add up.

Additionally, account maintenance fees might be added to your loan-linked savings account.

The solution is to look for banks that offer free NOCs and online statements.

Conclusion: Read the fine print before signing the loan agreement

Do not rush to sign the loan agreement. We understand you are excited and want the keys to your dream home ASAP, but kindly contain your excitement for a little while longer.

Check for all the hidden home loan fees mentioned above because they can all add up and increase your total cost of borrowing. Negotiate with your lender wherever possible, and do not forget to compare lenders before signing the dotted lines.

Ask the right questions, stay vigilant, and avoid unnecessary expenses – this should be your mantra for a dress-free homeownership journey!