Hidden Charges That Come With a Home Loan: Check the Full List
Home Loan Charges: Taking a home loan without proper information and preparation can sometimes become expensive. Before taking a loan, it is important to compare interest rates and other charges offered by different banks and NBFCs. It is always better to choose the lender that offers the loan at a lower overall cost. In reality, banks do not charge only interest on a home loan; they also collect several additional fees. Here are some of the common charges.
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Application Fee
When you apply for a home loan, the bank charges a fixed fee called the application fee or log-in fee. This fee is usually non-refundable, which means you will not get it back even if the loan is not approved.
Processing Fee
Banks charge a processing fee to review and process the loan application. This fee is also generally non-refundable. However, in some cases, customers may negotiate with the bank to reduce or waive it. Some banks also allow this fee to be paid in installments.
Legal Fee
A legal fee is charged to verify the legal documents and ownership title of the property. If the property is already included in the bank’s approved list, the bank may sometimes waive this fee.
Technical Assessment Fee
Banks send technical experts to check the condition of the property and estimate its market value. A technical assessment fee is charged for this process. Some banks include this cost in the processing fee, while others charge it separately.
Mortgage Deed Fee
A mortgage deed is a legal document through which the borrower agrees to pledge the property to the bank in exchange for the loan. This fee is usually around 1% of the loan amount. In some special offers, banks may waive this charge.
Commitment Fee
If the loan is approved but the customer does not take the loan within the agreed time, the bank may charge a commitment fee. This is also known as an Undisbursed Loan Fee.
Prepayment Penalty
If the borrower repays the loan before the end of the loan tenure, banks may charge a prepayment penalty. However, according to RBI rules, this penalty is not applied on floating-rate home loans. For fixed-rate loans, the charge can be up to about 2% of the prepaid amount.
Pre-EMI Charges
The interest paid between the time the loan is sanctioned and the time the borrower gets possession of the house is called Pre-EMI. During this period, the borrower only pays the interest, and the regular EMI starts after possession of the property.
Insurance Premium
Many banks advise borrowers to take insurance to cover risks such as property damage or the borrower’s death. This helps ensure that the family does not face the burden of the loan in case of an unexpected situation. Usually, a single premium insurance policy is taken for this purpose.