7 Home Loan Hidden Charges other than interest rate charges Additional Charges like Home Loan Processing Fee, Transfer Charges, Prepayment or Foreclosure charges, Conversion Charges, Switching Fee, Legal Charges, Valuation Charges, Home Loan Insurance, Late Payment Charges, List of Documents, Cheque Bounce or ECS Return etc.
In this article, we are going to talk about the hidden charges of home loans. When we go to take any home loan, there are many hidden charges in it and there are additional charges as well. On which, we often do not pay attention to and when the charges together come in front of us suddenly, So we feel that all of a sudden I had not even planned or budgeted about it. Today we will mainly see about the hidden charges and in what ways you can negotiate with the bank, to reduce those charges or even eliminate them. So you must stay in this Article from beginning to last because maybe you also never paid attention to some charges. So let’s know what are the hidden charges related to the home loan.
This is basically, what your Interest cost is, what you pay every month, apart from that, the rest are the hidden charges. In this, I will tell you total 15 charges, that you may have to pay. Out of this, 7 major charges are; major charges means which may have a large amount. Rest 8 are the additional charges. We will also talk about them. First of all, we will see these major charges.
In this, first comes your Processing Fees. Processing fees basically covers the marketing and sales cost of the bank. And covers their internal administrative expenses. Generally, banks sell many of their loans through direct selling agents. So the cost of DSA is covered by the processing fees. And then the internal administrative expenses are also covered by the processing fees. So the processing fees are generally about 0.25% to 1% of the total amount of whatever your home loan is. So suppose that, if your amount is 40 lacs, so your processing fees can be from Rs 10,000 to Rs 20,000. If it is 0.25% then it will cost you Rs 10,000. and it is 1% then it will cost you Rs 20,000. So you have to try that you negotiate for your minimum processing fees.
Then other than this, when you take a home loan so with that there is also legal and technical due diligence of that property. The complete background is checked. Property’s documents are checked, a site inspection is done and the property’s valuation is done. For that, a third-party lawyer is being appointed by the bank and with that, a professional valuer is also there. So their fees also have to be paid separately, which is charged as a Lump sum fee. Many banks include it in the processing fees if they charge 0.5% to 1%, so this legal & due diligence includes in it. Otherwise, many banks charge it separately, so it can be a lump sum fee of Rs 5,000 to Rs 10,000. So you should also know a little about this, should not be shocked suddenly. Because many times people don’t know about this, this fee is also costed extra.
Then there are MODT charges, MODT means Memorandum of Deposit of Title Deed. So a memorandum is signed when you have done your loan agreement. So a memorandum is signed that you have kept a title deed with the bank. On it, you have to pay the stamp duty, which is around 0.1% to 0.2% of the home loan amount. So it varies in every state but generally, it can be from 0.1% to 0.2%. You have to assume that it can cost you Rs 4,000 to Rs 8,000. If here only talking about the loan of Rs 40 lacs.
Then other than this, there is also a big expense of home loan insurance. A lot of banks nowadays sells both loan and insurance by clubbing them. The premium of insurance is added to your EMI. So if I talk about the example, so assume that you have taken a loan of 40 lacs and your age is 28 years, So around Rs 400, your additional premium will come per month. This will add to your EMI, whatever your EMI will come, you will have to pay additional Rs 400 per month. But the home loan insurance is not mandatory at all.
Pre-payment / Foreclosure charges
So our 5th charge is Pre-payment / Foreclosure charges. If you suppose, get some money, let’s say your loan was a total of 40 lacs, from which you already settle down of let’s say Rs 5 lacs by paying the EMI. Now let’s say from somewhere you get Rs 10 lacs. So you can pay the amount of Rs 10 lacs too. Ans if you subtract Rs 10 lacs then it will remain Rs 25 lacs only. So the amount of Rs 10 lacs, if you prepay it, so on that there are no charges according to RBI guidelines. If you have the floating interest rate then the pre-payment charges are waived off. Many times, a lot of bank charges the pre-payment penalty of 2%-3%. If you are paying, suppose Rs 10 lacs then 2-3% charge will be levied on it. If your loan is a fixed interest rate loan. Or if you are transferring your loan to some other bank and if you are paying from your sources, then there will be no charges on it. But if you are taking a loan from another bank and you are transferring your loan, so in that case, many banks charge these 2-3% pre-payment charges. So you should also know this, whenever you want to transfer a loan, so you must inquire about these pre-payment penalties.
Then there are the Conversion charges, conversion charges mean, now as I talked to you here that, here many times people transfer their loans, so mainly why do they transfer? because maybe they are getting an existing interest rate of suppose 10% in their banks. And in other banks, they are getting 8.5%. And maybe even your own bank is giving 8.5% to the new customers. Generally, what happens? They offer the best interest rates. Because of the competition, they have to give the best interest rates. Slowly, as the interest rate keep increasing, they keep on increasing your interest rate. But when the interest rates decrease, they don’t decrease your interest rates. Right. So don’t know, why this happens inside the market? The market is structured like this, but it happens. So for that, banks levy charges here too. If suppose your current interest rate is going on 10%. And you want that you get interest rate like a new customer as much as 8.5%. Then you have to pay the conversion charges to the bank, it will be 0.5-1% of the outstanding loan amount.
Then many times bank charges Switching fees. Switching means if you are having the floating interest rate, now suppose you have got a 10% of floating interest rate. And maybe you are getting a fixed interest rate of 11%. Right. So maybe you think that the 11% interest rate is ok, at least in the coming years, it will be fixed for any years. So that’s why you can also think of switching. So if you switch from floating to fixed or from fixed if you come to floating. So for that also you have to pay charges, it can be 1-2% of the outstanding amount.
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