As soon as most of us start making money and become financially independent, owning a home that we can call our own is one of the biggest dreams, right? And it’s no surprise that home loans serve as a bridge between that dream and reality.
But more often than not, amidst an already long list of crucial home loan decisions, such as racking up a down payment, finding the right property and choosing the right lender, one thing most people ‘among us tend to miss, these are the lesser known. charges.
Disregarding not-so-minimal fillers can dig a hole in your pocket while you’re busy taking care of other aspects. How to avoid this?
Read on as we explain some home loan fees and charges you should be aware of before and after taking out the home loan.
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1. Stamp duty
Stamp duty plays an important role in your home ownership process. It is a tax levied by the state government (State in which the property concerned is located), on any form of monetary transaction involving the transfer of the rights of a property. The amount of charges varies from state to state, depending on factors such as state laws and the type of property, location, cost of ownership, etc. Some states also promote financial inclusion for women by offering favorable stamp fees if the property is registered in a woman’s name. name either as a sole proprietor or as a co-owner.
Also, keep in mind that stamp duty is not included in the amount of the bank-sanctioned home loan.. So it is an additional cost that a buyer has to bear from his own pocket.
According to 99 Acres available data, stamp duty charges for some metropolitan cities including Delhi, Bangalore, Mumbai, Pune, Chennai, Kolkata, etc. vary between 2% and 7%.
So, for example, you are aiming to buy a property worth Rs 50 lakh. Assuming a 5% stamp duty, the fee would be around Rs 2.5 lakh! But remember that stamp duty can be charged either on the market value/circle rate or on the counterparty value of the property, whichever is higher.
2. Processing fees
Like almost all loans, home loans also have processing fees.
But what sets it apart from other loans like a personal loan or a car loan is that even though the fee percentage is lower in home loans, it turns out to be a large enough amount because home loans are usually expensive loans. So even if you take, for example, a home loan of Rs 75 lakh and the processing fee is, say, 0.5%, it turns out to be Rs 37,500, which is not a small fee, right? So, it’s best to take this into account when planning a home loan to avoid a last-minute shock that could disrupt your budget.
3. Conversion/Rate Change Charges
When paying off a home loan, borrowers often ask lenders to modify, change, or reduce their existing interest rates, for a variety of reasons. Besides setting a limit on the frequency, i.e. the number of times a borrower can submit such requests during the term of the loan, lenders can levy a fee for this.
Although they vary from lender to lender, the rate conversion fee generally ranges between 1% and 2% of the outstanding principal amount, or according to the limit set by the lender. So, when considering making such a request, be sure to review the applicable fees, especially if you have a large outstanding balance.
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4. Late EMI Fees
Whenever you commit any form of irregularity, i.e. miss or delay an IME, you are liable to pay the applicable fees for such actions. Late payments on EMI home loans result in penalizing interest rates typically up to 24% per annum, but this varies from lender to lender. It is levied on arrears/unpaid installments (above the prevailing interest rate on the loan).
This is why it is important to assess your repayment capacity when taking out a home loan and finalizing the mandate, which directly affects the amount of your EMI. Opt for the EMI that you are comfortable repaying without putting too much strain on your finances. Also, remember to keep at least six times your monthly EMI loan amount in your emergency fund, so you can use it to repay during unexpected financial demands like job loss.
To give you a fair idea of EMI Late/Late Payment Fees, HDFC Ltd charges up to 18% per annum on the amount in default, while HERE bank charges 2% per month, or 24% per year on the outstanding amount. Remember that these fees may change from time to time and you can check on the lender’s website.
5. Prepayment charges
Prepayment charges are another home loan fee that can cost you as an existing borrower.. During the term of the home loan, we may occasionally have excess funds, whether due to a bonus or maturing investment or some other kind of windfall. And if you decide not to invest but rather to spend that extra money on prepaying your home loan, whether partial or full, you need to know the prepayment charges.
While variable/adjustable rate home loans generally do not incur prepayment charges due to RBI guidelines, fixed and/or hybrid rate home loans may incur a prepayment penalty of around 2% at 4%, generally levied on the prepaid amount or the unpaid amount of the mortgage. So, for example, the amount you aim to prepay is Rs 5 lakhs, so the prepayment fee in this case, if assumed to be 2%, will turn out to be Rs 10,000.
6. EMI Bounce/Declined Fees
Whether you repaid via ECS mode or PDCs, failure to maintain sufficient funds in your bank account to pay your monthly EMI by the scheduled debit date may result in additional charges. Usually, lenders charge up to Rs 500 for such defaults each time, and these can vary from lender to lender. Such a penalty for EMI bounce is often referred to as a PDC/ECS dishonor fee.
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