BUYING A HOUSE is one of the special moments in our life, and many people look for buying their house during the festive season as this period is considered most auspicious for any kind of investment.. However, while taking a home loan, most people compare the prevailing interest rates and ignore other hidden charges that might apply to the loan.
You must remember that such charges can make a massive difference to your actual loan repayment obligation. Here we take a look at some of those charges:
Processing fee
Loan applicants usually know that banks would charge a processing fee when they apply for a home loan. A processing fee may include KYC-related costs, loan eligibility checks, verification of address and income, credit history verification, etc, and varies from bank to bank. In most cases, the lender levies a certain percentage of the loan amount or a fixed amount, whichever is lower, as the processing charges. For example, SBI’s home loan has a processing fee card rate of 0.35% of the loan amount (plus applicable GST) subject to a minimum of Rs 2,000 and a maximum of Rs 10,000 (plus applicable GST). However, as a part of its Festive Bonanza, the bank has waived off the processing fees on home loans up to 31st Jan 2023. The processing fee usually varies from .20% to 2% of the loan amount, subject to a lower and upper limit, depending on the lender’s terms and conditions.
Administration charges
Before disbursement, the lender completes the due diligence towards legal evaluation and valuation for estimating the worth and suitability of the property before mortgaging it. Some banks may separately charge fees towards legal opinion and for the valuation of the property. Administration charges usually vary from 0.2% to 0.5% of the property value.
Also Read: Took a home loan from HDFC? Three EMI payment methods you should know
Memorandum of Deposit of Title Deed (MODT) charge
The MODT charge is levied towards creating a mortgage on the property’s title deed. The MODT shows the lender’s share of your property till you repay the entire loan. These charges, which include stamp duty and registration fees, vary from state to state and range between 0.1% and 0.5% of the loan amount.
GST charges on home loan
You don’t have to pay GST on the loan amount directly, but GST applies to the charges you pay to the banks on the home loan. For example, if the processing fee is Rs 5,000, then you need to pay a GST of 18% on it, i.e., an additional Rs 900 to the bank. So, your total processing fee payable to the bank would be Rs 5900, inclusive of GST. Similarly, GST is applicable to administration charges, legal opinion fees, etc.
Charges for home loan documentation
When you apply for a home loan, the bank has to maintain and manage several documents safely. Therefore, they levy documentation charges towards getting your documents in safe custody and keeping such documents in their record. Some banks include documentation charges in the processing fee and do not show it as a separate overhead.
Other charges
The list of charges is not over yet, as the home loan may include some more charges, such as incidental charges, property insurance premiums, credit score access charges, pre-EMI charges, etc. The costs vary from bank to bank. So, check with your lender before applying for a loan.
“While taking a home loan, a borrower must consider not just the interest rates but all other charges he might be liable to pay to the financial institution from where he is borrowing the money. These charges may vary from one bank to another. Banks give you details of these expenses,” says Adhil Shetty, CEO, Bankbazaar.com. “So, you can estimate these charges, which may typically include the processing fee, GST, legal charges, prepayment charges (in case of fixed interest rate), documentation and delay penalties, among others. It is advisable to go through these charges before signing the dotted lines of the loan agreement.”
If you plan to buy a property from a developer, you may check their list of tie-ups with lending institutions. Getting the loan facility from a bank with a developer tie-up can save you several charges because they usually enter the tie-up after thorough assessments. Usually, legal opinion charges, valuation fees and processing fees are waived-off (depending on the arrangement between the developer and the lender). Before applying for a loan, you must check the additional charges in advance so that it doesn’t put you into financial stress at a later stage.
LOOK BEYOND EMI
* Just comparing the interest rate on the home loan is not enough
* Processing fee usually varies from 0.20% to 2% of the loan amount
* Some banks charge fees for legal opinion and property valuation
* Memorandum of Deposit of Title Deed charge is levied towards creating a mortgage on the property’s title deed
