Home Loan: Few charges you should know about

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In today’s world loans are being approved every minute of the day.They are in fact taken for multiple purposes. A loan for your new house forms an essential component under this umbrella. Let’s say you have selected the bank that offers the best rate of interest. But have you looked at the other charges? Banks could offer a lesser rate of interest, but levy heavier charges on you that may go unnoticed. Even if you can’t get rid of them it’s always better to know them and choose your bank based on this too.

Here’s a list of a few charges your bank may not tell you about:

  1. Processing Fees: As the name suggests this fee is collected towards processing of your home loan application. This fee is non-refundable and is collected upfront regardless of whether your loan is sanctioned or not. Take this into account before choosing the bank you want to take the loan from. It may vary for every institution but usually may be 0.5% till 1% of the loan amount.
  2. Mortgage Deed Fee: This is one of the major charges you will have to incur while opting for a home loan. It is generally a percent of the total home loan amount. In general, most institutions charge 0.5 per cent of the loan amount as an MOD charge. So for a ₹40-lakh loan amount, the MOD charge will be ₹20,000.Some banks waive off this additional cost to make the home loan look more attractive. But again, it may be subject to another set of terms and conditions.
  3. Legal Fee: Before granting a loan, banks need to check the credibility of the borrower. They appoint lawyers to verify the legal status of their property. The fees charged by the lawyers are eventually passed on to the borrower. However, if the property you are buying is approved in advance by any institution, this fee is not applicable.
  4. Prepayment Penalty: Though pre-payment charges have been done away with, but only for floating home loans. Some banks still charge a pre-payment penalty if the consumer uses third party funding and not his own. Pre-Payment penalty remains applicable for fixed home loans or loans availed under special schemes.
  5. Commitment Fee: Some banks levy a commitment fee in case the loan is not availed by the borrower within a stipulated period of time after it is processed and sanctioned. The bank loses interest on the undisbursed amount. Therefore it recovers a part of the interest from the borrower known as a commitment fee.

All banks may not charge all of the fees mentioned above. It is always advisable to check with the banks beforehand to avoid any surprises.

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