Home Loans Come With Charges: Know Them!

With the government readily helping the real estate sector attract sales to pay off for the losses they incurred throughout the pandemic, this year has been a boom for Real Estate firms and financial institutions providing home loans. The buyers, everyone from the standard class people to High Net-Worth individuals like Alia Bhatt, Jhanvi Kapoor, Ajay Devgn, etc., to Big Businessmen, Radhakishan Damani, founder of DMart, is on a shopping spree for properties.

Although nobody desires to empty their bank accounts all at once when buying a property, it is only rational to seek out a Home Loan Institution and apply for a loan. Still, there are a few things that an intelligent buyer must keep in mind before going for a home loan.

Buying a home is not like buying clothes or gadgets where one can ignore the T&C’s and move to the MRP section. Irrational buyers act impulsively and pay lakhs extra while buying a house; financial institutions are intelligent companies. They can easily add hidden charges within the fine print, which you may not find prima facie. We are talking about millions here and adding a few thousand here. 

They may not even matter to a person, but when you sum up all of those extra charges, you’ll find out how much you could have saved had you done proper due diligence from your end. Like W.C. Fields has said, “Trust everybody, but cut the cards yourself.”

Few Points to look for when applying for Home Loans:

A home loan processing fee or administrative fee: A one-time, non-refundable fee that most financial institutions would charge you. It is the most basic fee for the institution’s services, and it ranges from 0.5% to 2% of the total loan amount. So, a 45 Lacs loan may come with another 22,500-90,000.

Prepayment (Foreclosure or Preclosure) Charge:

• Many people want to close their loan accounts beforehand by paying the total due amount in full.
• They should look for the charges that some institutions charge for this.
• Foreclosure charges may vary from 2% to 6% of the outstanding amount, depending on the institution.

So, if you wish to close your loan account by paying the balance due of 20 Lacs, you may have to pay a prepayment penalty of 40,000-1.2 Lacs.

(Just for paying the amount that is due)

Late Payment Fee: This is something to be kept in mind. If you are late in paying your monthly EMI, you will have to pay interest. The interest ranges between 2-3% of the delayed amount. If the EMI is still unpaid, then interest keep accruing.  

Documentation Fee: Documentation charges include Stamping charge, Interest Certificate charge, NOC/NDC related charges, Agreement copy fee, Document Retrieval charge, CIBIL Report Fee, etc. On the face of it, these charges may look like nothing, but again, “Drops of water may fill an ocean”.

Valuation (Inspection) Fees: A valuation fee is an amount banks spend on inspecting the property. The charges here will depend on the actual amount spent during the Inspection.

MOD (Memorandum of Deposit of Title Deed) Charge:  Memorandum of Deposit of Title Deed (MoD) is to confirm that you’ve given your property’s title deeds/ownership papers to the bank as collateral for the loan. It confirms the possession of the specific property; it’s conjointly known as MODTD, DTD, or MODT. The deed should be written on a non-judicial stamp paper. As an example, the MOD charge in Karnataka province is 0.1% to 0.2% of the cost of the property (min. Rs.500 and max. Rs.10 lakh).

Franking Fee on Sale and Loan Agreement: In some states, there is a stamp tax collectable on the property agreement with the builder/seller 0.1% of cost-Rs 4,500 and the loan amount 0.1-0.2% cost-Rs 9,000.

Home Loan providers help bring life to many people’s dreams, but our responsibility is not to get fooled and overpay for no good reason. There are a few other charges. In the end, it is the buyer’s responsibility to do his proper due diligence.