10 Hidden Home Loan Charges That Lenders Don’t Tell You About
Home Loans can make your dream of living in your own home a reality. While availing a Home Loan is quite an easy process, there are a number of things a borrower should know about before applying for one.
If you think interest amounts and processing fees are the only charges that you need to pay to your lender, you’re mistaken. Lenders usually charge other fees that you don’t know about, which is why they are usually termed as “hidden” charges. While these expenses vary from one lender to another, here are some that are common to most banks and NBFCs.
1. Conversion Fees
This is one of the most common hidden Home Loan charges and it ranges from 0.5-1% of your total loan amount. You need to pay this fee if you want to reduce your rate of interest on your Home Loan in the future.
For example, suppose you took a Home Loan at 12% (10% base rate + 2% mark up). After a period of time, the bank or NBFC reduced the mark up to 0.5% for new customers. So, new customers will get the loan at 10.5% and but you’ll still pay interest charges at 12%. You can reduce the markup rate only if you have paid the conversion fee at the time of availing the loan.
2. Memorandum of Deposit of Title Deed Charges (MODT)
MODT is an undertaking that states you’ve deposited the documents of your property at a bank or NBFC at your own will. The Government of India levies stamp duty on the property’s documents to get them registered. The MODT charges vary from state to state but, on an average, lies between 1-2% of the Home Loan amount.
3. Delay in Cheque Disbursement
Your bank or NBFC will start calculating interest right from the date the loan cheques have been issued. However, property deals rarely happen on time and your seller might further delay the process by not giving you relevant documents. Your lender will not hand over the disbursement cheques unless all the formalities are complete and they’ve all the relevant documents in hand.
In such a case, the interest charges will start piling up and you might end up paying extra.
4. Document Retrieval Charges
These charges are levied at the time of loan pre-closure or closure. It’s a fee that you need to pay in order to retrieve the property documents from the central document repository of your bank or NBFC.
Banks and NBFCs divide the documents into two parts at the time of receipt—sale deed, sale agreement, and other similar documents fall under the most important category while NOC and Khata are considered general documents. The most important documents are kept in the central repository and third party agencies are hired to manage them. General documents, on the other hand, are kept at the local branch of the financial institution.
For example, let’s assume, you’ve availed a Home Loan at Bangalore from a financial institution named X, which has its central repository (and head office) at Mumbai. The most important documents will be sent to Mumbai while the general ones will be kept in Bangalore. Once you close your loan, your lender will ask you to pay a document retrieval charge for the safe transfer of your documents from Mumbai to Bangalore.
This is usually added to your processing fee at the time of loan approval.
5. Valuation and Inspection Fees
Before your Home Loan is sanctioned, physical examination of the property will be carried out by a representative of your bank or NBFC. This is done to ensure that the financial institution is not over-lending. In the case of a default, the lender would be in a position to auction the property and recover their dues.
You have to pay a valuation and inspection fee for the completion of this formality.
6. Documentation Charges
Your Home Loan approval depends on your Home Loan eligibility and in order calculates it, a number of documents are required. Since these documents are important and need to be managed carefully, most banks and NBFCs will charge a documentation fee for the same.
7. Changing your Loan Tenure
Sometimes, you might want to increase or reduce your EMI amounts due to a change in your financial standing. Increasing the EMI amount reduces the loan tenure and vice versa. A salary hike is the most popular reason why borrowers increase their EMI amounts. That being said, keep in mind that some banks and NBFCs tend to charge a fee for allowing you to change your installment amounts.
8. Pre-Payment Charges
Most borrowers strive to pay off their loans before the specified date. Prepayment is one way of doing it and though prepayment charges have been waived off for floating Home Loans, others still have to pay them. So, if your Housing Loan rates are fixed and you want to make a prepayment, you will need to be prepared to pay the fee that comes with it.
9. Recovery Charges
What happens if you default? Your lender will charge you for the same and you might incur a per-installment default charge along with a full recovery fee. This penalty, however, varies from one lender to another.
10. Late Payment Charges
A delay in paying your EMI might cost you a lot. Banks and NBFCs levy late payment charges (a fixed late payment charge+additional interest on the amount due) as a penalty for failing to make a payment in time.
Some of the other charges that are levied include technical charges and legal charges. While looking for your ideal Home Loan, make sure you know about all the charges your potential bank or NBFC lender levies. You can do so by reading their Home Loan agreement carefully.