14 overhead charges you need to be aware of while applying for a home loan
Updated on November 26, 20186 mins read
You have finally decided to go ahead and buy that dream house of yours – Congratulations! After zeroing in on your property the next step is to get your home loan and finances sorted.
While comparing home loans that different banks offer, you are bound to go for the lender that gives you the highest loan amount, apart from looking at the interest rates and the EMIs you would have to pay. While EMIs are definitely an important factor while choosing, you need to be aware that banks tend to charge a number of other fees for various services and steps that are involved in the application process, which, when totaled, could come up to a significant amount. It is also important to note that some of these charges are applied regardless of whether the loan is sanctioned or not. To ensure that you don’t end up with a rude shock, we have drawn a list of overhead charges that you need to be aware of while applying for a home loan:
Processing fee: This is the fee that the bank collects towards processing your bank loan application, verifying your documents, performing credit and property appraisal and completing other loan-related formalities. You will need to pay the fees regardless of whether your loan is sanctioned or not. Though the processing fees varies from one bank to another, it is usually anywhere between 0.25 percent and 1 percent (some banks put a maximum cap of Rs 20,000, while some housing finance corporations do not have a cap) of the loan amount. This fee is non-refundable and has to be paid along with the loan application. Sometimes, though, the lender would process the cheque only if the application is successful. Some banks also give the option of paying the fees in two parts – one along with the application and the balance before the disbursal of the loan. At times lenders also waive off this fees – it depends on your negotiating skills and the policy at that time. State Bank of India, for example, has a processing fee holiday going on currently. The processing fees is also one fee where you can negotiate with the lender if your loan value is high.
Legal and Technical evaluation fees: Banks and financial institutions appoint external lawyers and third-party agencies to conduct legal and technical verification. These agents go through all the documents that you have submitted and also take up a technical verification of the site. In the case of some high value properties, the lenders may conduct two valuations, with the lower of the two being considered for loan sanctioning. All PSU banks charge a separate legal and technical evaluation fees. This fee also doubles if the loan value exceed a certain threshold such as Rs 1 crore. PSU Banks charge the fees as they get it done by third party agencies, unlike private sector lenders who do a bulk of this in-house. Several private sector lenders include this fee in processing fee.
Administration charges: In case the bank splits the processing fees into two parts – the one that is charged after the loan is sanctioned is the administration charges. This is a one-time, non-refundable fee.
Stamp duty on home loan agreement: The stamp duty is a tax which is levied on your documents to prove that they are legal and can be produced in the Court of Law. You will have to pay a stamp duty if you have availed of a loan. Home loan agreement stamp duty varies from state to state and is a percentage of the home loan value. Hence, if you buy a home in Mumbai, and have applied for a loan in Chennai, than you would have to pay stamp duty for the property as per the rate in Mumbai, and stamp duty for the home loan agreement as a percentage of the home loan amount, as per the rate in Chennai. Home loan agreement stamping is at 0.3% in some cities such as Chennai, 0.2% in Mumbai and Rs 100 in Delhi and Kerala.
Franking fee on loan agreement: Franking is the process of confirming that your stamp duty has been paid. Here the home loan agreement, which is printed on a plain paper, is submitted to an authorised bank or the franking agency, which then processes the document using a franking machine. In some cases, you may be asked to pay a franking fee by the authority for the service – this may be up to 0.1% of the total home loan value. So, for example, if the loan you are availing of is Rs 60 lakhs, you may have to pay Rs 6,000 as franking fees on the loan agreement.
Memorandum for Deposit of Title Charges: The MODT charge is applicable for the undertaking that you have given that you are depositing your original title documents with the bank, and that they will be returned to you after the loan is closed.
Documentation charges: Home loan approvals require a lot of paperwork, including getting the loan agreement signed, the ECS mandate activated, indexing, MODT sorted, etc. Some banks and financial institutions charge to get all the documentation processed.
Indemnity cost: Certain banks require that the borrower (you) indemnify the lender for certain risks, such as in case the builder faces a delay in receiving approvals or if the property tax is not paid by the seller. This is the indemnity cost.
Pre-payment charges: While pre-payment charges are not applicable in the case of floating rate interest home loan, if you opt for a fixed rate interest home, a majority of the banks do apply pre-payment charges.
Home loan insurance: Many banks insist that you buy a home loan protection plan, though it is not mandatory to buy it as per RBI. This is to guard against the risk of defaulting on the home loan or the inability to repay the loan in case of circumstances such as the death of the borrower. In such a circumstance, the insurance company pays the bank the outstanding amount of the loan. Most home loan protection plans are single premium policy ones, where the bank may club the premium amount with the loan amount and you would pay the EMI for both. For example, if the home loan you avail of is Rs 50 lakhs, and the insurance premium is Rs 1 lakh, you would have to pay EMI for a total loan of Rs 51 lakhs.
Switching loan type fees: If you had opted for a floating home loan (one where the rate of interest varies depending on market conditions) but decide to switch your loan to a fixed rate home loan, or vice versa, your bank may charge a fee as a loan switching charge. This is usually around 1 percent of the outstanding loan amount.
Loan tenure change: You may also wish to increase/decrease the rate of interest, thereby affecting the loan tenure – this invites the loan tenure change charge. This is usually a fixed fee and varies from bank to bank between Rs 500 to Rs 5,000.
Notary fees: If you are an NRI, you need to get your KYC (Know Your Customer) and Power of Attorney notarised by the Indian Embassy. This service is also charged.
Late payment fees: The name says it all – you would need to shell out a hefty amount if you happen to miss out on paying your EMIs on time. With most banks, an auto debit facility occurs and so your EMIs go out automatically, however, the charges kick in if your payment bounces. The late payment fees vary depending on the bank, however, it is usually a percentage of the outstanding amount with a minimum and maximum fee. In some cases, it can be as high as 2% of the overdue monthly installment, apart from late payment charges of Rs 500-Rs 1,000. Late payments also affect your credit rating, hence, it is not a good idea to default on any payment.
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