Hidden Charges United in a Home Loan

Are you planning to apply for a home loan in order to purchase the property of your dreams? If yes, it’s vital for you to know some of the hidden charges in a home loan. As a home loan borrower, you might be opting for a bank that offers home loans at low-interest rates. But the overall cost of borrowing a huge chunk of money significantly increases through multiple hidden charges that are united with it. 

So, let’s discuss in detail the top 13 hidden charges that are clubbed in a home loan. 

1. Home Loan Administration Fee

The foremost fee hidden in a home loan is the home loan administration fee. This charge is a variant of the processing fee. While some banks or financial institutions charge only one levy known as the processing fee, other banks split it into two, i.e. processing and administration fees. The processing fee is charged before sanctioning the home loan, and the administration fee is charged after sanctioning the home loan.

2. Home Loan Processing Fee

In the time between the submission of the home loan application and the bank approving the same, the moneylender has to perform a series of tasks in order to process your home loan request. In this process, the bank officials check the veracity of your home loan application and the documents attached to it. Banks or financial institutions charge a processing fee from the buyer to carry out this task. Some banks charge a certain percentage of the home loan amount as a processing fee, whereas others charge a flat fee for the same. 

For example, SBI charges 1% of the home loan amount as a processing fee with a minimum of Rs. 1000 and a maximum of Rs. 10000. Also, note that paying a processing fee does not guarantee that your home loan application will be approved. Since the fee is non-refundable, the borrower cannot claim any refund if the home loan application is rejected by the lender. 

3. GST on Home Loan

Another hidden charge that is associated with a home loan is GST. When offering a home loan, banks or financial institutions offer you a handful of services that bring them under the ambit of the “Goods and Services Tax” regime. Even though the amount of loan remains outside the purview of this tax, Goods and Services Tax is charged on the administrative fees, processing fees, technical and legal assessment fees etc. 

4. Registration Charge & Stamp Duty

When you get the sale deed registered with the sub-registrar, the moneylender is given the original documents to keep as security until the borrower repays the home loan fully. To formalise this arrangement, a MODT, i.e. Memorandum of Deposit of Title Deed is executed by the buyer, stating the facts. As per State laws, stamp duty and registration charges are applicable on this document, which must be registered. If we talk about charges, they may vary from one state to another, but the buyer will have to pay 0.10%-0.20% of the home loan amount as the registration charge and stamp duty. 

Also Read: Hidden Expenses of Home Ownership

5. Home Loan Documentation Charges

For getting the ECS, i.e. Electronic Clearing System activated, and for signing all the documents, money lenders might charge a fee between Rs. 500 to Rs. 2000 as the documentation charges on the home loan. But there is another documentation charge too. 

The borrower submits the original sale deed to the bank once the deed is registered with the sub-registrar. The bank branch then sends this document to the central location, where the sale deed is kept safe for the entire home loan tenure. Some banks or financial institutions even involve third-party to carry out this entire princess, for which they have to pay additional money. And this charge is eventually transferred to the borrower. 

6. Credit Score Report Charges

Whether or not the bank will approve your home loan request depends on your credit score. If you want the bank or financial institution to issue a copy of your credit score to you in order to gauge the prospects of getting the home loan, the bank will charge a fee to issue the same, compiled by the credit bureau. 

7. Legal/Technical Assessment Fee for Property

When a bank or financial institution processes your home loan request, it employs a third party to conduct the legal and technical verification of the real estate to gauge two facts. Firstly, whether or not the property is free from any kind of encumbrances and there are no legal complications concerning the property’s ownership. Secondly, whether or not the property is actually worth the amount it is being sold for and of, the financial institution must grant the loan amount that the borrower has applied for. 

Since this task involves hiring technical and legal experts, the borrower is made to bear the cost of the technical and legal assessment. Most banks charge a fixed and flat fee for this purpose, and these charges are often higher for high-value properties. 

Also Read: Common Mistakes Home Loan Applicants Should Avoid

8. Cheque Bounce Charges

If any payments are made to the bank through a cheque and the cheque bounces, the borrower will then be made to pay the penalty. At HDFC, the bank charges Rs. 200 as a penalty for each cheque dishonoured. Also, it’s pretty important to note that the banks whose favour the cheque has been issued can file a complaint about the bounced cheque as per Section 138 of the Negotiable Instruments Act. As a punishment, you will have to pay the penalty of double the amount, serve a jail term, or both. 

9. Home Loan Re-Sanction Charges

Once the bank or financial institution approves the home loan application, the borrower actually has to get the sanctioned amount disbursed within 3 months of the issuance of the sanction letter. If the borrower fails to stick to that deadline, the validity of the sanction letter expires, and the bank will have to re-sanction the loan amount. Such a situation might arise if the home buyer begins to have any doubts about the builder from whom he/she is buying the home or if the seller backs out from the deal at the last minute. 

In such a case, the borrower will be asked to pay a nominal fee for availing of the sanction services all over again. 

10. Fee for Change of Home Loan Tenure

In case you initially selected a 15-year repayment tenure because you were able to pay the monthly EMI. Now, in case you have to extend the tenure due to salary issues or other monetary stress, the financial institution will impose a cost on you for changing the tenure. The same applies if you want to shorten the tenure. 

11. EMI Late Payment Penalty

A borrower of a home loan is under due obligation to pay his/her EMIs on time. A delay in the same would result in default while also attracting monetary penalties. While some financial institutions or banks might charge a fixed amount. Whereas others might charge a fixed percentage as a penalty on the amount of instalment due. 

12. Home Loan Pre-Payment Charges

The home loan prepayment charge is another surprising charge associated with a home loan. The borrowers who have taken a home loan on a floating interest rate have no issue, as the RBI has already prohibited banks from imposing any sort of pre-payment penalty on such borrowers. However, the same does not apply to borrowers who have taken a home loan on a fixed rate of interest. Such borrowers are entitled to pay the prepayment penalty on the home loan to the bank. This charge could be a certain percentage of the outstanding home loan amount. 

13. Incidental Charges on Home Loan

Some banks might also ask the borrower to pay an incidental charge to cover the risk in case of defaults. As per HDFC, incidental charges and expenses are levied to cover the charges, costs, expenses, and other charges that might have been expended in connection with the recovery of dues from a defaulting borrower. 

Also read: Top 10 FAQs on Home Loans in India