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10 Home Loan Charges that You must Know

  • Highlights

  • Your home loan may contain many charges

  • Pick a lender who is transparent and keeps costs down

  • Any alterations in loan terms can incur additional charges

  • High charges increase the cost of your loan

Lenders usually tell you the interest rate attached to your home loan, but it is important that you look beyond it. While the interest rate is a good way to judge the affordability of a loan, knowing the additional fees and charges will give you the complete picture.

Some of the Home Loan charges are listed below:

1. Conversion fee

You need to pay a conversion fee when you switch from base rate to MCLR rate. This is a one-time process and the reverse cannot be done. Here, lenders charge you a fee of up to 0.5% plus taxes on your loan outstanding, at the time of conversion.

On the other hand, with NBFCs where MCLR is not applicable, you can shift interest rates all along the tenor by paying a nominal conversion fee.

Say you have taken a loan at a fixed interest rate of 12% and now with time, the interest has reduced to 11.50%. By paying the conversion fee, you can reset to the lower interest rate. You can use the home loan EMI calculator available on lender websites to calculate your EMI on the altered interest rate, before finalizing the conversion.

2. MODT charges (Memorandum of Deposit of Title Deed)

MODT acts as a legal undertaking stating that you have willingly deposited all your property documents to your lender as a security against your home loan. In case you fail to repay the loan on time, the lender has a right to your property based on the MODT. To register MODT, government levies a stamp duty of 0.1%-0.2% of the loan amount. This fee varies across Indian states.

3. Processing fee

The processing charges for home loans are levied to cover all administrative costs incurred in verifying and approving your application. This fee is non-refundable and thus, you will not get any moneyback even if your loan is not sanctioned. Many financial institutions sanction loans on zero processing fees, while some charge up to 2% of the loan amount. Some lenders only charge processing fees on loans they have approved, and deduct this amount from the loan amount that is sanctioned to you.

Additional Read: Home Loan Fees and Charges

Home Loan Charges

4. Retrieval of document charges

While applying for a home loan, you have to submit all your documents to the lender. The financial institution keeps these in safe custody and deposits them with the Central Document Repository (CDR). When you want to retrieve your documents after Home loan closure, your lender may ask you to pay some cash to relieve your documents from CDR.

5. Technical charges

For the verification of your documents and property, a lender appoints a team of legal and technical experts. They are responsible for carrying out a thorough investigation of your financials and your property on behalf of the lender. To conduct this legal and technical service, lenders may charge you a fee.

6. Repayment charges

Most lenders attach separate charges on your home loan towards foreclosure and part-prepayments. To avoid paying such charges, you can choose a floating rate of interest on your home loan. As per the RBI’s directive, no lender can levy these charges on a floating interest home loan. However, if you have a fixed rate home loan, you may pay up to 4% of your total outstanding during foreclosure and 2% on prepayment.

Additional Read: Home Loan Stamping and Franking Charges

7. Penal fee

On every delayed and missed EMI payment, your lender applies an additional charge on your monthly obligation. As a penalty, lenders in most cases apply a 2% additional interest on each missed or delayed EMI.

8. Bounce charges

In case your EMI cheque bounces or your ECS gets dishonoured, you need to pay a penalty over and above the penal fee. Charges levied by lenders can go up to Rs.3,000.

9. Loan tenor resetting charges

You can request an increase or decrease in your EMIs or request the alteration of the tenure anytime after you make prepayments on your loan, or if you are unable to sustain the hefty EMI burden, or have more income and want to repay your loan sooner paying more as EMIs. To process your request, lenders charge a fee of up to Rs.500.

10. Recovery charges

If you default on your EMIs for a long duration then lenders conduct legal procedures via which they recover thedue loan amount. In most cases, they will attach the cost of the procedures as a recovery charge along with your due amount.

So, it is best for you to carefully read about all the additional charges before applying for a home loan. This will help you plan your finances accordingly, and also understand what you shouldn’t do in order to keep costs down.

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