While home loans have become significantly cheaper since the last year, owing to reduced interest rates, the ensuing costs remain one of the causes for concern in the borrowing process. The cost of a home loan is one of the foremost factors that individuals must consider before initiating the process. While individuals tend to get busy calculating the monthly instalments, there are other associated charges that are levied once a housing loan gets sanctioned.
Therefore, from the down payment to home insurance and everything in between, individuals must be cautious about various charges involved in availing home loan. Read on to know about the major costs that individuals have to bear while purchasing their dream home.
Loan processing fees are also called loan origination fees which are levied by the lending institution to process the loan application. Loan processing fees are a one-time charge and are determined by the loan amount, type, and borrower’s income profile.
Legal and technical charges
While processing the home loan, lending institutions often involve a third party to perform legal and technical verification of the property. Lending institutions conduct this assessment to ascertain that there are no legal complications associated with the ownership.
On the other hand, the technical assessment enables lenders to evaluate the cost of the property and help them decide whether they would grant the amount applied by the borrower. As lenders involve the third party to conduct these assessments, they charge additional costs for this from the borrowers.
While some lending institutions charge only one fee known as processing fees, others split the charges into two, namely processing fees and administrative fees.
Processing fees are charged before sanctioning the loans, and administrative charges are levied once the loan gets sanctioned. It includes the annual charges to update home loan records, and the same varies from one lender to another.
Pre-payment charges, also known as foreclosure charges, are levied by lending institutions if an individual pays off his/her home loan in full before the end of the tenor.
As per RBI regulations on home loans, lending institutions do not levy pre-payment charges on floating home loan interest rate. Nonetheless, individuals who have availed housing loans with fixed interest rates have to bear pre-payment charges. Few lending institutions do not levy foreclosure charges on home loans.
These NBFCs also provide pre-approved offers to make the loan application process hassle-free. These offers are available on other financial products like home loan, loan against property and many more. Individuals can check their pre-approved offer by entering their name and contact details.
While applying for a home loan in India, individuals have to pay 18% GST in case they are availing it for ready-to-move-in flats. For under-construction property, the slab is set at 12%. The payable GST percentage on housing loans is the same across India.
The home loan procedure includes documentation charges. This fee is charged by lending institutions to sign all the documents and activate electronic clearing service (ECS).
Stamp duty and registration duty charges (MODT charges)
Memorandum of Deposit of Title Deed (MODT) refers to the legal arrangement where the borrower willingly submits the registered property documents with lending intuitions till he/she repays the full home loan amount. To initiate this process, lenders levy stamp and registration duty charge on the property documents under state law.
Individuals must check local respective state registration portal to know how many stamps and registration duty charges are levied on a home loan.
Late payment charges
Home loans mandate borrowers to pay monthly EMIs. Any delay in payment would be considered as a default which would lead to a monetary penalty. Some lending institutions may charge a fixed amount, while others may demand a fixed percentage of total due instalment. Along with these changes, there might be some other hidden charges on a home loan that individuals must be cautious about.
Since there are several costs associated with home loans, individuals must check and compare them with other lending institutions to make an informed decision.