Buying a home is a dream for many, but taking a home loan involves various charges that can significantly increase the cost. While most borrowers focus on the interest rate, they often overlook hidden charges that banks and financial institutions levy. Understanding these charges can help you plan your budget better and avoid unexpected financial burdens.
1. Processing Fee: The First Step Cost
The processing fee is the amount charged by banks or financial institutions to process your home loan application. This fee covers administrative expenses, verification of documents, and creditworthiness evaluation.
How Much is Charged?
- Typically ranges between 0.25% to 2% of the loan amount.
- Some banks have a fixed fee, while others charge a percentage of the loan amount.
- The fee is non-refundable, even if the loan is not approved.
2. Loan Application Fee: Initial Administrative Costs
Many banks charge an application fee separately before even processing the loan. This amount is used for basic administrative tasks, paperwork, and initial assessments.
How Much is Charged?
- Usually ranges from Rs.2,000 to Rs.10,000, depending on the bank.
- Some banks adjust this amount in the final processing fee.
3. Legal and Technical Verification Fees
Banks conduct legal and technical verifications to ensure the property is free from disputes and meets construction standards. They appoint third-party evaluators for this process.
How Much is Charged?
- Legal charges: Rs.5,000 to Rs.15,000 depending on the complexity of documentation.
- Technical charges: Rs.3,000 to Rs.10,000 for property valuation and inspection.
4. Stamp Duty and Registration Charges
These are government-mandated charges for legalizing the property documents. These charges vary from state to state in India.
How Much is Charged?
- Stamp duty ranges from 3% to 7% of the property value.
- Registration charges are around 1% of the property value.
- Additional court and notary charges may also apply.
5. Prepayment and Foreclosure Charges
If you plan to repay your loan before the tenure ends, banks may levy a prepayment penalty, especially for fixed-rate loans.
How Much is Charged?
- Floating rate loans: No prepayment charges (as per RBI guidelines).
- Fixed-rate loans: 1% to 5% of the outstanding loan amount.
6. Late Payment Penalty
Missing EMI payments attract penalties, which can increase your financial burden and affect your credit score.
How Much is Charged?
- 2% to 3% per month on the overdue EMI amount.
- Some banks charge a fixed penalty per missed EMI.
7. Home Insurance Costs
Banks often insist on home insurance, which covers damages due to natural disasters, fire, or other risks.
How Much is Charged?
- Rs.3,000 to Rs.10,000 per year depending on property value and coverage.
- Some banks offer tie-ups with insurance companies, but you have the right to choose your own provider.
8. Conversion Fee for Interest Rate Change
If you want to switch from a fixed to a floating interest rate or vice versa, banks charge a conversion fee.
How Much is Charged?
- Usually 0.5% to 2% of the outstanding loan amount.
9. Loan Restructuring or Rescheduling Charges
If you want to extend your loan tenure or restructure EMI payments, banks levy additional fees.
How Much is Charged?
- Rs.5,000 to Rs.25,000 or 1% of the outstanding amount.
10. CERSAI Charges
The Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) charges fees to register property-related transactions.
How Much is Charged?
- Rs.50 to Rs.500 depending on the loan amount.
11. GST on Loan Charges
All financial services attract GST at 18%, which increases the cost of various charges.
How Much is Charged?
- Applied on processing fees, legal fees, foreclosure charges, and other bank charges.
Final Words: Plan Your Loan Wisely
Understanding these charges before applying for a home loan helps in better financial planning. Always ask for a detailed fee structure from your lender and compare charges before choosing a home loan. This will save you from hidden costs and unnecessary financial stress.
