15 hidden charges associated with home loans

[ecis2016.org] Listed below are 15 hidden charges associated with housing loans in India

This is possibly the best time to purchase a property using housing finance, as banks are currently offering home loans starting at 6.65% annual interest. However, it would be naïve on the part of the borrower, to simply opt for the bank that offers the lowest rate of interest on home loans. The overall cost of borrowing a huge sum of money increases significantly through the various hidden charges and a smart borrower should ensure that he is not caught unawares by the bank on this front.

You are reading: 15 hidden charges associated with home loans

As banks may levy some of these costs from the borrower, as and when applicable, at any point of the loan’s tenure, the borrower should ensure that his budget takes into account these additional expenses.

1. Home loan processing fee

In the intervening time between the submission of the loan application and the bank approving of the same, the lender has to perform certain tasks to process your request. The bank officials will thoroughly check the veracity of your application and the documents attached with it. To carry out this task, the bank charges a processing fee from the buyer. While some banks charge a certain percentage of the home loan amount as processing fee, other banks have a flat fee for the same.

SBI, for example, charges 1% of the loan amount with a minimum of Rs 1,000 and a maximum of Rs 10,000, as the processing fee. Borrowers at HDFC, have to pay up to 0.50% of the loan amount or Rs 3,000, whichever is higher, as the processing fee. Sometimes, banks also waive the processing fees, to attract borrowers.

Note that paying a processing fee does not guarantee that your loan application will be approved. Since this charge is non-refundable, the borrower will not be able to claim any refund, if the lender rejects the home loan application.

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2. Home loan administration fee

This fee is a variant of the processing fee. While some banks charge only one levy known as the processing fee, others split it into two – as the processing fee and administration fee. The former is charged before sanctioning the loan and the latter is charged after sanctioning the loan.

3. Stamp duty and registration charge

When the sale deed is registered with the sub-registrar, the lender is given the original documents to keep as security, till the time the borrower has fully repaid the home loan. To formalise this arrangement, a memorandum of deposit of title deed (MODT) is executed by the buyer, stating the facts. Under the state laws, stamp duty and registration charges are levied on this document, which must be registered. While charges vary across states, the buyer will pay 0.10%-0.20% of the loan amount as the stamp duty and registration charge.

4. GST on home loan

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When offering the home loan, the banks provide you a host of ‘services’, which brings it under the ambit of the Goods and Services Tax (GST) regime. Even though the loan amount remains outside the purview of this tax, GST is charged on the processing fee, administrative fee, technical and legal assessment fee, etc.

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5. Technical/legal assessment fee for property

As the bank processes your home loan request, it employs a third party to perform the legal and technical verification of the property, to gauge two facts:

1. Through the legal assessment the lender gauges whether the property is free from any sort of encumbrance and that there are no legal complications with respect to its ownership.
2. Through the technical assessment the lender ascertains whether the property is worth the amount it is being sold for and if the bank should grant the loan amount that the borrower has applied for.

Since this task involves legal and technical experts that the banks hire, the borrower is made to bear the cost of the legal and technical assessment. Most banks charge a flat fee for this purpose. The charges are often higher for high-value properties, for which multiple rounds of technical and legal assessment may be required.

At HDFC, ‘fees on account of external opinion from advocates/technical valuers, as the case may be, is payable on an actual basis as applicable to a given case. Such fees are payable directly to the advocate / technical valuer concerned for the nature of assistance so rendered’, says the bank.

6. Home loan documentation charges

For the signing of all the documents and for getting the electronic clearing service (ECS) activated, lenders may charge between Rs 500 and Rs 2,000 as the documentation charge.

There is another documentation charge, too. The original sale document is submitted to the bank by the borrower, after the deed is registered at the sub-registrar’s office. This document is then sent by the bank branch to a central location, where it is kept safe through the course of the loan tenure. Banks often involve third parties to carry out this entire task, for which they have to pay additional money. This charge is transferred to the borrower eventually.

7. Credit score report charges

Whether or not the bank will approve your home loan request, will depend on your credit score. In case you want the bank to issue a copy of your credit score to you, so that you can gauge the prospects of getting the loan, the bank may charge a fee to issue a copy of the credit report, compiled by the credit bureau.

8. Fee for change of home loan tenure

Suppose you initially opted for a 15-year repayment tenure, because you were able to pay the monthly EMI. Now, if you have to extend this tenure, because of a salary cut or any other monetary stress, the bank will impose a cost for changing the tenure. The same applies, in case you shorten the tenure.

9. Loan conversion fee

Even though the Reserve Bank of India (RBI) continues to tweak policy rates in such a way that interest rates remain in the comfort zone of the end-users, banks are slow in passing on the rate cut benefits. While banks have switched to the RBI-regulated repo rate benchmark to price their loans since October 2019, a borrower whose loan is linked with the previous MCLR regime, will continue to service his loan based on this benchmark only. Worse still, many older borrowers continue to service their home loans on the base rate regime.

Now, if a borrower approaches his bank to get his existing loan linked to the new lending benchmark, the banks would process such a request, only after levying a cost for the same. This charge is known as the conversion fee.

10. EMI late payment penalty

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A borrower is under obligation to pay his EMIs on time. A delay in doing so would result in default, while also attracting monetary penalties. While some banks may charge a fixed amount, others may charge a fixed percentage on the amount of installment due, as the penalty.

AT HDFC, delayed payment of interest or EMI will render the customer liable to pay additional interest of up to 24% per annum.

11. Home loan prepayment charges

Those who have taken a home loan on a floating interest rate have no problem, as the RBI has prohibited banks from imposing any prepayment penalty on such borrowers. However, the same does not hold true for borrowers who have taken a home loan on a fixed rate interest. A home loan prepayment penalty will be charged by the bank from such borrowers. This could be a certain percentage of the outstanding loan amount.

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12. Charges for home loan account statement

If, at some point in your loan tenure, you realise that another lender is offering you better services at lower interest rates, you may be tempted to move your home loan to the new bank. However, the new bank will first look at your repayment record before approving your home loan transfer request. In case you do not have any documentary proof of the same, you have to approach your home branch to get a copy. To provide this service, the bank charges a nominal fee. For future references and use, keep copies of the original document safe with you.

13. Home loan re-sanction charges

After the bank approves your home loan application, the borrower generally has to get the sanctioned amount disbursed within three months of the issuance of the sanction letter. If the borrower is not able to stick to that deadline, the validity of the sanction letter expires and the bank will have to re-sanction the loan. Such a scenario may arise, if the seller backs out from the deal at the last minute. This could also happen if the buyer starts to have doubts about the builder from whom he is buying the unit.

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

14. Cheque bounce charges

If any payments have been made through a cheque to the bank and this cheque bounces, the borrower will be made to pay a penalty. At HDFC, the bank charges Rs 200 for each instance of check dishonouring.

Also note that the bank in whose favour the cheque has been issued can file a complaint under Section 138 of the Negotiable Instruments Act over the cheque bounce. As punishment, you may have to serve a jail term or pay a penalty of double the amount, or both.

15. Incidental charges on home loans

Banks may also ask the borrower to pay an incidental charge, to cover the risks in case of defaults. According to HDFC, incidental charges and expenses are levied, ‘to cover the costs, charges, expenses and other monies that may have been expended in connection with recovery of dues from a defaulting customer’.

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