The only cash outflow you think of while applying for a Home Loan (or contemplating it) pertains to the subsequent EMI (Equated Monthly Instalment) payments you need to make. And interest rates are the only percentages that find a place in your thoughts. However, when you borrow a Home Loan, you do not just pay the interest and the EMIs. There are certain fees, duties and charges that you are required to pay as a part of the process; some before getting a Home Loan approval, some after you receive it, and a few during the tenure of the loan. Most of them are common to every Home Loan application while a few are situational expenditures that are contingent on a particular event and on the lender’s regulations and lending policy.
Expenses incurred before loan approval
Your first expense towards borrowing a Home Loan is incurred in the form of an application fee. The application fees need to be paid upfront along with the application and are completely non-refundable. So even if you change your mind about borrowing a Home Loan, or agree on terms with another lender, this amount is not going to resettle in your pockets. Banks usually charge Rs. 1,000 to Rs. 5,000 as the application fee.
Technical evaluation fee
Before the lender grants you an approval, the property must be evaluated to determine its value, based upon which the loan amount is sanctioned. Some high-value properties need to be evaluated twice to be certain that the correct value has been determined. Most lenders charge a fee for this job.
Once you submit the requisite property and personal documents with the bank, thorough legal verification of the documents is initiated by the bank. While some banks have an in-house team of legal professionals for the purpose, others outsource the job to experts. The bank asks you to pay a legal fee for this process. Some lenders include the legal fee as a part of the processing fee which could be paid post approval, while others demand it to be paid beforehand.
Expenses incurred after loan approval
Processing & administrative fees
Processing fees were previously required to be paid along with the application, but certain lenders now incorporate the amount in your EMIs. In case the lender requires you to pay the fee along with the application, then it becomes a non-refundable expense. The fee is calculated as a percentage of the disbursed loan amount and it usually ranges from 0.5% to 2.5% of the principal. So for a home loan of Rs. 50 Lakhs, you may end up paying Rs. 1,50,000 as processing fees!
Such a hefty charge, however, could be avoided if you compare the loan terms from different banks and NBFCs (Non-Banking Financial Companies) and choose the most cost-effective one. The easiest way to do this is to make an Online Home Loan Application through www.mymoneymantra.com, the most prominent online financial service provider in India. Their highly experienced and skilled professionals pick out the best home loan offers for you from the plethora of lenders. They will help you find loan offers with the lowest interest rates, minimum processing fees, quickest loan turnaround time and minimal documentation.
Stamp duty & registration charges
Firstly, you need to pay stamp duty and the registration charges on the sale agreement. Both charges vary from state to state. Stamp duty ranges from 4.6% to 12% of the agreement value or the market price whichever is higher while registration fees hover around the 1% mark. Thereafter, you also need to register the loan deed for which the state government may charge 0.1% to 0.2% of the loan amount.
Memorandum of Deposit of Title Deed (MODT) charges
The MODT is an undertaking given by you that the property’s title documents are deposited by you with the bank in exchange for a loan at your own free will. The bank requires this document to be registered, for which the state government imposes a stamp duty of 0.1% to 0.2% of the loan amount.
Home insurance premium
Certain lenders demand that a home insurance policy must be taken out so that the mortgaged property would still hold value as collateral security in the eventuality that untoward incidents like a fire breakout or a natural disaster cause severe damage to the property.
A commitment fee is a fee charged for an undisbursed loan. If you do not avail of the sanctioned loan amount within a stipulated time period, the bank charges about 0.5% of the difference between the sanctioned and disbursed amounts to compensate for the lender’s commitment to lend.
Prepayment & late payment charges
When you repay the loan either in part or in full before its due date, the bank suffers an interest rate loss. To compensate for this, banks demand a prepayment charge to the tune of about 2% of the outstanding balance at the time of the final payment. Prepayment charges are not applicable for floating interest rate Home Loans.
Before you borrow a home loan, do not just consider the interest rates but also factor in the quantum of these aforementioned expenses to make sure that you get a fair, transparent and affordable home loan offer.
Also Read: What Does a Home Loan Process Include?
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