Home loans are secured, high-value advances which are granted for purchasing or building residential properties. These credits usually come with extended tenor, ranging from 2 to 20 years in most cases.
Despite offering an affordable rate of interest, home loans might incur several charges that a borrower will have to pay during the loan’s tenor. It is crucial for borrowers to know these home loan charges in advance so that they can either avoid them or at least plan ahead for them. These hidden charges which can be incurred on a home loan are listed below.
Incurring charges applicable to a housing loan
Conversion fee:
This fee must be paid by customers if they convert their home loan from base rate to MCLR rate. This is a one-time process that cannot be reversed. Usually, a nominal charge of 0.5% of the loan amount is charged by financial institutions during this conversion.
Borrowers opting to go for this conversion should use an EMI calculator to calculate their ultimate expenditure beforehand.
MODT (Memorandum of Deposit of Title deed) charges:
This is a legal undertaking by applicants which states that all property documents are willingly being submitted to the loan financer. In the event of defaulting on a said loan, it is MODT which grants a lender right to the property. According to government norms, 0.1% to 0.2% of the loan amount is charged as MODT by the government.
In the same thread, it is important customers look up and know the difference between stamping and franking charges too.
Processing charges:
All administrative charges come under this incurring charge. It includes expenses and costs of verifying all documents submitted in a loan application along with other approval costs.
Consequently, irrespective of approval of home loan offers, this charge is non-refundable because a dedicated team is issued to check the said documents of property as well as other documents. While some NBFCs grant loans at zero processing charge, few financial institutions charge up to 2% of the loan amount.
Document retrieval fee:
Numerous documents are submitted during the approval of a home loan. These are kept in safe custody by the financial institution with the Central Document Repository (CDR) till the time when a borrower clears his or her loan. Under normal circumstances, financers ask for a small fee from the borrowers to retrieve these documents from CDR.
Repayment charges:
Most NBFCs offer their customers an option to prepay their whole loan or at least a portion of it with a lump sum amount to avoid a portion of the expenditure on interest. While some lenders do not charge this facility, few levy a fine of 2% to 4% while a foreclosure or part prepay. Like easy home loans online apply, customers can also apply for this online.
Penalties:
While decoding home loan fees and charges, penalties are the most obvious and avoidable charges for customers. There are several types of penalties which a borrower might have to pay. This includes a penal fee in case of missed or delayed payments, bounce charges in the event of cheque rejection, tenor resetting charges and even recovery charges if defaulted on a home loan.
Even though some of the charges listed above cannot be avoided, customers should take care to keep their overall home loan rates at bay. Consequently, special attention must be given to repayments and other essentials so that some of these incurring charges are not levied on the repayment amount.