For many of us, owning a home is a dream come true — and especially for Indians! Some people can make this dream a reality by saving up, while a large majority are not able to join the ranks of homeowners without using a home loan. When making plans for a home loan, most borrowers look at their EMI, tenures, and rates of interest, but miss out on things like additional hidden charges or costs. These hidden costs can ruin even the most detailed budgets, potentially causing significant financial stress! Therefore, it is essential to be informed about these hidden charges before simply signing a loan agreement. In this article, you will learn about the hidden costs of home loans that every first-time homeowner should be aware of, which include 10 different hidden charges.
Hidden Charges:
1. Processing and Administrative Fees:
This is one of the most typical costs imposed at the start of the loan process. The lender typically charges a processing fee of 0.5% to 2% of the loan amount to cover the cost of assessment and paperwork for the application and documentation issues. Borrowers need to be aware that administrative charges may be applied separately to other items — even if the lender says they are offering that “there is no processing fee.” Most charges are non-refundable, even if the loan is not approved or the borrower decides to pull out of the deal. For a loan of ₹50 lakh, a processing fee of just 1% is an added cost of ₹50,000.
Pro Tip: These are negotiable. If you have a regular income (salaried) or an excellent repayment history, try to negotiate an exemption or reduction at festive offers or pre-approved schemes for the loan.
2. Legal and technical verification charges
Before assigning a home loan, lenders should have two checks: a legal verification (to ensure the property has a clear title and that there are no disputes) and a technical verification (to assess the property’s market value and physical condition). These legal and technical verifications usually cost somewhere between ₹5,000 to ₹25,000, and this charge is passed on to you.
Pro Tip: Inquire if they can provide a detailed breakup and find out if the verification done by your current lawyer works. Public banks may charge fixed costs for these verifications and might have lower fees than private lenders.
3. Stamp duty on loan agreements and MODT
In addition to ensuring the property is registered, most borrowers are not aware that stamp duty is to be paid on the loan agreement and the Memorandum of Deposit of Title Deeds (MODT). The MODT simply describes that you have handed over your property papers to the bank. All states have different stamp duty percentages for mortgage documents; the stamp duty can be from ₹1,000 to a few thousand rupees.
Pro Tip: This is non-negotiable, but if you are aware of it beforehand, it can help you plan more effectively for your overall cash outlay.
4. Conversion Fees
Lenders may allow you to transfer to a lower interest rate when rates fall. However, there will be a conversion fee (typically 0.25% – 2% of the outstanding loan amount). A lot of borrowers overlook this and keep making the higher EMIs.
Pro Tip: Regularly check market rates and compare them to your market rate. Please check if the cost of a lower PRI outweighs the conversion fee.
5. Prepayment and Foreclosure Fees (Fixed Rate Loans)
In the case of fixed-rate loans, if you repay the loan (in part or in full) before the end of the period, the banks may penalize you with a 2–4% penalty of the amount prepaid. Floating-rate loans are not classed as prepayments, but in fixed-rate loans, banks will levy these penalties.
Pro Tip: If you are going to repay early anyway, a floating-rate loan would avoid this kind of hidden cost. Always get the prepayment terms in writing.
6. Home Insurance Premium
Most lenders or banks require their borrowers to take policies that cover risks like fire, flood, and other natural disasters. Some lenders will also combine their life insurance policies with your EMI.
Why it matters: These costs are recurring and can become a significant portion of your total repayment through the term of the loan.
How to avoid it: You are free to go with any insurer approved by the IRDAI. Don’t feel pressured by bundles that wrap this product with bank EMIs. Compare the premiums and insist on transparency.
Also read: Think Missing a Personal Loan Repayment Is No Big Deal? Think Again
7. EMI Bounce Charges / late payment penalty.
If you don’t have enough money in your account for your EMI, you will incur a bounce fee of ₹500–₹1,000 as well as a penalty interest charge of in the range of 1% to 3% monthly on the unpaid EMI.
Why it matters: Aside from your money loss, having your EMI delayed too often negatively affects your credit scores, which could tend to affect your eligibility for another loan.
How to avoid it: You can set up auto-debit mandates, have a comfortable buffer balance, and keep a lookout for EMI due dates.
8. Goods and Services Tax (GST)
All the fees related to a mortgage, including service fees, legal search fees, and documentation fees, are charged at 18% GST!
Why that matters: Most borrowers forget about this tax, and this means the effective cost of every fee gets significantly higher
How to avoid it: While GST is a fixed fee and not negotiable, you can minimize it considerably by negotiating the ‘base fee’ lower and asking for quotes including the GST amount as part of the quote.
9. CERSAI Fee
Your bank registers your mortgage with CERSAI to eliminate fraud. That fee can be anywhere from ₹50 to ₹500 and is deducted during disbursal with little notice.
Why that matters: Although this is a regulatory fee, it tends to pop up as a surprise.
How to avoid it: You can’t avoid it, but demand that it be listed within the disbursal summaries of full disclosure.
10. Documentation & Statement Fees
Each time your bank issues a duplicate statement, interest certificate, or duplicate loan documents, there is a charge. These fees generally range from ₹100 to ₹500 for each request.
Why that matters: Plus, each request may seem small, but this fee can build up, especially if it’s repeated each year over a loan term of 15-20 years, and you request annual statements.
How to avoid it: Download any paperwork through net banking or the bank’s mobile app, keep digital copies, and resist repeating requests.
Conclusion
A home loan is more than just EMIs and interest; it has additional charges that could occur if overlooked. Hidden charges are generally not openly revealed, and given enough time will increase your expenses. Learn the secret fees, and follow solutions to miss them, and your home loan should remain as affordable and stress-free as possible. The details are important to know; always read the fine print and be inquisitive, because informed borrowing is smart borrowing.
Written by N G Sai Rohith
