Undisclosed charges involved in Home Loans

The primary attraction for any loan is the interest rate. But what you might not be aware of are charges other than interest rates which may exceed your budget. While many banks and lenders are quick to explain the perks and benefits of your loan, many don’t include hidden charges in home loans until it’s too late to back out. 

Looking Beyond the Interest Rate

It’s imperative that you inquire about the other costs and fees involved in the home loan process before signing the loan document. In this article, we touch upon a few of these extra charges that come with securing a home loan.

• Application Fees: This is a flat fee meant to cover the cost of processing the application.
  
• Processing Fee: Paid along with the application form for lenders to collect information for loan eligibility. It’s about 0.25% to 0.50% of the loan amount. The processing fee is non-refundable even if your loan is not sanctioned.
  
• Commitment Fees: A commitment fee is a fixed percentage of the undisturbed loan amount. Lenders keep a line of credit open at a specific date in the future to ensure that you’ll receive funds regardless of the financial situation in the markets. Always remember, a commitment fee is charged only on the undisturbed loan amount.
  
• MODT Charges: Memorandum of Deposit of Title Deed is an agreement that assures you’ve deposited your documents willingly. This would cost about 0.1% to 0.2% of the loan amount. This is also one of the most common hidden charges in home loans. 
  
• Administrative Fees: This charge covers the administrative cost of processing an application. 
  
• Legal Fees: The fees you pay to get your property approved by a lawyer before applying for a loan. 
  
• Valuation/Inspection Fees: For the physical inspection of your property to ascertain the appropriate lending amount.
  
• Pre-payment Charges: If your financial situation is good, you may think of closing the loan by paying it off completely. To cover up for the loss of interest, lenders charge a prepayment fee. Some NBFCs do not levy any prepayment charges and allow you to foreclose your loan without hassles.
  
• Documentation Charges: These are the fees charged to complete the documentation process.
  
• Late payment Charges: Any missed EMI or late payment will result in additional charges being levied.
  
• Fees for Loan Tenure Change: If you want to increase or reduce the tenure of your loan, you can get it done after paying a small fee.
  
• Loan Conversion Fees: Lenders will charge you a fee if you want to switch between fixed and floating rates in the middle of your loan tenure.
  
• Loan Statement Charges: Usually an annual statement is provided by the lender for free. In cases where you need an additional statement, it can be received after paying a nominal amount.
  
• Service Tax: To top it all, a loan is essentially a service being provided. Ensure all charges are inclusive of service tax. Else you will end up paying an exorbitant amount of fees before you get your hands on the loan.
  

When you are applying for a home loan, do not shy away from asking the lender all the additional charges associated with it. Various hidden charges and service charges associated with home loans may make up for a relatively low interest rate.