While we all know about interest rate on home loan, there are several associated charges that may escape our attention.
As home loans are taken for long tenures, utmost care should be taken while choosing one. While interest rates are the first and the foremost aspect all borrowers look at while evaluating options, there are several associated charges that many are unaware of, and are equally important.
Here’s a list of the lesser-known home loan charges you should be aware of:
1. Repayment mode
While servicing their home loans, many borrowers often request their lender to change their existing repayment mode. Some prefer the ECS mode while others may find the post dated cheque system more convenient. However, many lenders levy a fee for switching your loan repayment mode from ECS to cheque or vice versa, as per the borrower’s requested mode. This fee usually goes up to `500 per instance (swap), varying lender to lender.
2. Franking charges
Many lenders, while processing your home loan application, levy franking charges, which are commonly referred as stamp duty fee. Stamp duty is nothing but a tax levied by state government (state wherein the concerned property is located), on any form of monetary transaction involving transfer of rights of a property. The quantum of charges varies state to state, depending upon the state laws and type of property, location, etc.
Rate conversion/ switching fees
Lenders are often requested by borrowers to change, switch or reduce their existing interest rates, due to various reasons. Borrowers can request to either switch from base rate setting regime to MCLR system, from fixed rates to floating rates or from a higher floating rate to lower floating rate. Lenders may also set a limit on the frequency, i.e., the number of time a borrower can submit such request, during the loan tenure. Such conversions or switching involves a certain fee as well, which varies lender to lender. Usually, this rate conversion fee goes up to a maximum of 2% of the outstanding principal amount, or else as per the limit set by the lender.
3. CERSAI Charges
CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest) is the central online security interest registry of India. The primary motive of creating such an organisation is to prevent frauds occurring due to multiple loans being taken against the same asset (property) from different lenders. It maintains a central registry of all equitable mortgages taken on a property, along with details of lender and borrower. Prospective lenders can check on CERSAI’s website whether the property against which they are lending a loan is not encumbered by a pre-existing security interest created by some other lender.
Lenders have to register details of security interests created by them with the CERSAI, within 30 days of its creation. Hence, the home loan borrower is charged a nominal fee for this process. The charges are prescribed by CERSAI itself, fixed at Rs 50 for loan amount up to Rs 5 lakh, whereas loans above Rs 5 lakh attract a fee of Rs 100 for original filing or modification.
4. Overdue charges on EMI
Whenever the borrower misses or delays an EMI, or commits any form of default, he is liable to pay charges on such actions. Late payments attract penal interest rates, which may be as high as 24% per annum (2% per month), on the outstanding dues/ overdue installment (over and above the prevailing interest rate on loan). Therefore, before taking a home loan, make sure you are financially capable of repaying it timely and in full, to avoid paying such high penalties for delayed payments.
5. EMI bounce charges
Whether you have been repaying through the ECS mode or PDCs, failure to maintain sufficient funds in your bank account to pay your monthly EMI on the set date, would attract additional charges. Usually, lenders charge up to `500 for such defaults, which may vary lender to lender.
(The writer is CEO & Co-founder, Paisabazaar.com)