While home loans are affordable products offered by banks and financial institutions, they also involve a bouquet of charges. If you are planning to avail of a home loan shortly, then apart from meeting the home loan eligibility criteria, it’s necessary for you to learn about the various charges involved in the loan process, over and above the home loan interest rates. This will give you an estimate of the various costs you will need to budget for, and understand if they need to be paid upfront, or over the tenure of the loan.
- Login Fees: Also known as application fees in certain cases, these are the charges levied by the bank at the very initial stages to open your case and consider your loan application. These charges may be anywhere between Rs. 1000 to Rs. 6000 on average and are non-refundable whether your loan application gets approved or rejected.
- Processing Fees: These are the fees charged by the banks from the borrowers for processing their applications. While in most cases, the processing fees are charged as a percentage of the loan amount, some banks may also charge it as a fixed amount. It is payable during the disbursal of the loan.
- Technical and Legal Charges: These are the charges incurred by the banks while processing the application. It may include visits conducted by the officials for inspection of the property, technical valuation of the property, obtaining title clearance certificate of the property, etc. As these are procedural aspects that need to be taken care of, such charges are separately levied from the processing fees.
- Documentation Charges: These are usually for completing the loan formalities and documentation and activating the ECS mandate. These are not compulsorily levied by all the banks.
- Insurance Charges: Home loan insurance is mandatory for anyone taking a home loan to reduce the risk of the financial institution. Most financial institutions provide flexibility to pay the insurance charges i.e., either it can be paid upfront or cumulated with the loan amount and paid over the tenure of the loan.
- Interest: This is the most important element of a home loan. Interest cost is levied over the tenure of the loan and forms the most significant charge, not only for a home loan but for other loans as well. The home loan interest rates usually start from 6.70% per annum. These form a significant component of your EMI. If you want to know your EMI amount in advance before applying for a home loan, then you can use a home loan EMI calculator. You just need to enter the loan amount, home loan interest rate, and tenure.
While the above charges are primary for any loan application and processing, certain other charges that the borrowers should be aware of includes the following:
- GST: While your home loan EMIs does not include GST, other charges like processing fees, technical and legal charges, etc. may attract GST.
- Prepayment/Foreclosure Charges: In case you opt for prepayment of your loan or transfer your loan to another bank, your existing lender may levy certain charges known as prepayment or foreclosure charges. These are usually charged as a percentage of the loan amount outstanding.
- Penal Charges: In case you skip any EMI, then penal charges are levied by your bank in the form of EMI bounce charges.
- Recovery Charges: In case the lender resorts to recovery proceedings to recover the loan amount, then recovery charges are attracted.
While borrowers are aware of commonly discussed charges like interest, processing fees, etc., they miss out on certain other charges as discussed above. While applying for a loan, it is important to consider and compare the above charges cumulatively and select the most affordable lending institution.