Home loans are the most popular financial instruments for purchasing a property for most of us. The COVID-19 pandemic has impacted the purchasing capacity of many buyers, leading them to option of availing of home loans to achieve their dream of buying a home in the aftermath of the pandemic.
As beneficial as home loans are, they also come with their set of accompanying costs, apart from the EMIs that are payable. One such cost that is factored is the processing fee that applicants are required to pay. This is also known as the home loan charges.
Every home loan aspirant should compare the processing fees borrowers expect and build it into the costs they have to bear while availing of the home loan. This will help you map your own home loan expense, and it will help you choose the more affordable home loan option.
It is also possible to discuss and negotiate home loan charges with the lender before finally agreeing to sign the loan agreement. It is estimated that processing charges for most home loans can often go up to Rs.2 lakh.
The following is a breakdown of the home loan processing fees.
Charged at the onset of the home loan application, this fee isn’t necessarily merged into processing fees. In case the loan is denied, this fee is not refunded. The fee ranges from Rs.2000 to Rs.7000.
This fee is paid borne by the borrower, to get their property evaluated and for legal opinions on their loan, for the benefit of the lender. The property evaluation fee ensures that the property that the borrower is going to purchase with the home loan is worth the amount of money and it does a solidifies for your loan application in the eyes of the lender.
The legal opinion fee is paid to get a legal evaluation of the property before the lender agrees to give a loan to purchase the property. The legal evaluation ensures that the property/ the land on which the property is being built is free from any legal disputes and/or the previous mortgage. This fee is usually a flat amount that is paid and is not dependent on the loan that is being applied for.
These are the charges which are paid by the applicant of the home loan to the concerned regulatory/governmental body which overlooks the sale/purchase/lending/borrowing. These charges include stamp duty charges, memorandum of demand (MOD), memorandum of mortgage (MOE), Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) charges.
CERSAI registration of the loan and the property is helpful since CERSAI ensures that the same collateral is not used by the borrower for availing multiple loans.
Other state statutory bodies and regulatory bodies may levy their own charges. These charges are paid by the borrower and therefore should be taken into account before signing a loan agreement.
Though not an absolute necessity, home loan insurance protects both the lender and the borrower in case of any unforeseen eventuality. The premium for home loan insurance is a standard amount for lower principal loan amounts.
However, for larger home loans, the home loan insurance premium is calculated as a percentage of the loan amount. Usually, lenders tend to charge this premium at the time of finalizing the loan; it may, however, be paid over instalments if the premium is deemed large.
This is a collection of several nominal fee amounts which are not significant individually but can accumulate together and form a sizeable amount. These include stamping fees paid to the government, income tax certificate charges and No Objection Certificate (NOC)/ No Dues Certificate (NDC) charges. NOC/NDC is necessary to confirm that the borrower has repaid the loan in total and has no financial obligation to the lender anymore.
Issuance of duplicate NOC/NDC may levy revalidation charges. In addition, agreement copy fees, issuance charges for the title documents, duplicate statement issuance charges, amortisation charges and document retrieval charges may also apply.
It may be noted that not all these changes need to be necessarily paid. Often some of these are also waived off by the bank or the lending institution. It is however wise to double-check the fine print of the loan agreement to make sure what the borrower needs to pay, in addition to the EMI.
In addition to the home loan fees and charges listed above, the bank or the lending institution may charge other fees to ensure that losses are not incurred by the lending institution during repayment. The following is a list of such fees/charges:
Delayed payment charges are payable when the borrower defaults on Equated Monthly Instalments (EMIs). The delayed payment charges range from 1% to 2% of the outstanding loan amount. The actual amount payable may/may not be a lot.
Applicants must note that all irregularities in repayment have to be reported and this leads to a reduced CIBIL score of the borrower. A bad credit history reduces the chances of the borrower being able to buy any credit-linked financial products in the future.
The main purpose of these charges is that in case the borrower defaults on EMI payments, the bank or the lending institution, after due reminders of repayment, may need to initiate legal proceedings against the borrower(s).
The charges incurred in such proceedings are recovered by the bank or the financial institution from Incidental/Recovery/Collection charges which have been previously deposited by the borrower.
It may also be noted that an additional 18 per cent GST is also charged on home loan processing fees, which should be added to the calculations when planning a housing loan. Some banks also have a refund policy for processing fees. It is advisable that the borrower clearly understands the refund policy and the percentage refunded before applying.
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Last update on 11-Mar-2021
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