The Not-so-tiny Home Loan Charges You Must Know About

As soon as most of us start earning and become financially independent, owning a home we can call our own is one of the biggest dreams, right? And it's no surprise that home loans act as the bridge between this dream and reality.

But more often than not, amidst an already long list of crucial decisions surrounding home loans, such as accumulating down payment, finding the right property and choosing the suitable lender, one thing most of us tend to miss out on, are the lesser-known charges.

Failing to take into consideration the not-so-tiny charges can dig a hole in your pocket while you are busy taking care of other aspects. How to avoid that?

Read on as we explain some home loan-related fees and charges which you should be aware of before as well as after taking the home loan.

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Also Read: Does It Make Sense For Millennials To Apply For A Home Loan In Their 20s

1. Stamp duty fee

Stamp duty occupies a big chunk in your process of owning a property. It is a tax levied by the state government (state wherein the concerned property is located), on any form of monetary transaction involving the transfer of rights of a property. The quantum of charges varies state to state, depending upon factors like the state laws and type of property, location, property cost etc. Some states also promote the financial inclusion of women by offering concessional stamp duty fees if the property is registered in a womanĄ¯s name either as a sole owner or as a joint owner.

Also, remember that stamp duty charges are not included in the home loan amount sanctioned by the bank. So, this is an extra cost that a buyer has to bear from their own pocket.

According to data available on 99acres, the stamp duty charges for some metro cities including Delhi, Bangalore, Mumbai, Pune, Chennai, Kolkata etc. ranges between 2%-7%.

So, for example, you are aiming to purchase a property of value of Rs 50 lakh. Assuming 5% stamp duty, the charges would amount to around Rs 2.5 lakh! But remember that stamp duty may either be charged on the market value/circle rate or the consideration value of the property, whichever is higher.

2. Processing fees

Like almost every loan, home loans, too, involve processing fees.

But what separates it from other loans like a personal loan or car loan is that even if the fee percentage is smaller in home loans, it calculates out to be a big enough amount because home loans are usually big-ticket loans. So, even if you are, for example, taking a Rs 75 lakh home loan and the processing fee is, say, 0.5%, it turns out to be Rs 37,500, which is not a small fee, right? So, you better take it into consideration when planning for a home loan to avoid a last-minute shock which can disrupt your budget.

3. Rate conversion/ switching fees

During home loan repayment, lenders are often requested by borrowers to change, switch or reduce their existing interest rates, due to various reasons. Besides setting a limit on the frequency, i.e. the number of times a borrower can submit such requests during the loan tenure, lenders may levy charges on this.

Although it varies from lender to lender, the rate conversion fee usually ranges around 1%-2% of the outstanding principal amount, or else as per the limit set by the lender. So, when contemplating the thought of placing such a request, make sure you go through the applicable charges, especially if your outstanding amount is big.

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4. Overdue charges on EMI

Whenever you commit any form of irregularity, i.e. miss or delay an EMI, you are liable to pay the applicable charges on such actions. Late payments on home loan EMIs attract penal interest rates of usually up to 24% p.a., but it varies from lender to lender. It is levied, on the outstanding dues/overdue installment (over and above the prevailing interest rate on the loan).

That's why it's important to assess your repayment capacity when taking a home loan and finalizing the tenure, which affects your EMI amount directly. Opt for the EMI that you are comfortable repaying without stretching your finances too much. Also, don't forget to keep at least six times your monthly loan EMI amount in your emergency fund, so that you can use that to repay during unforeseen financial exigencies like job loss.

To give you a fair idea of the overdue/late EMI payment fees, HDFC Ltd charges up to 18% p.a. on the defaulted amount, whereas ICICI bank charges 2% per month, i.e. 24% p.a. on the outstanding amount. Remember that these charges may change from time to time, and you can check on the lender's website.

5. Prepayment fees

Another home loan-related charge that can eat through your pocket as an existing home loan borrower is the prepayment fees. During home loan tenure, we may sometimes have surplus funds, whether due to a bonus or an investment maturing or some other kind of windfall. And if you decide to not invest but instead put this extra money towards your home loan prepayment, whether partial or full, then you must know the prepayment charges.

While the floating/variable rate home loans usually do not involve any prepayment fees due to RBI guidelines, fixed-rate and/or hybrid rate home loans may involve around 2%-4% prepayment penalty, levied on usually either the prepaid amount or the outstanding home loan amount. So, for example, the amount you aim to prepay is Rs 5 lakhs so the prepayment fees on that in this case, if assuming it as 2%, will turn out to be Rs 10,000.

6. EMI bounce/dishonour charges

Whether you have been repaying through the ECS mode or PDCs, failure to maintain sufficient funds in your bank account to pay your monthly EMI on the set date of debit can attract additional charges. Usually, lenders charge up to Rs 500 for such defaults each and every time, and these may vary from lender to lender. Such penalty on EMI bounce is often referred to as PDC/ECS dishonour charges.

Also Read: Does It Make Sense To Make Your Spouse The Co-applicant When Taking A Home Loan?

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