How much does your mortgage really cost?

Although the cost of borrowing a home loan is mainly determined by the interest rate, borrowers should also consider the additional fees that lenders levy on the sanction before making their choice. It is advisable not to restrict their preferences only to those who offer low interest rates. Several other important, albeit hidden, issues also affect the overall cost of borrowing. To be a wise borrower, be sure to keep up to date with the fees and charges you may have to pay to avoid disrupting your loan budget allocation.

We’ve put together a list of fees and charges that are typically applied on a home loan sanction – both before and after disbursement. Although the list may differ from lender to lender, borrowers can still expect to pay at least 90% of these fees.

Additional fees applicable on home loans

Before we dive deeper into what each fee and charge entails, let’s branch out the fees, depending on which phase of the home loan you can expect to pay.

Here is a complete list of miscellaneous charges on your home loan:

Processing fee

Once you submit your home loan application, it goes through a rigorous approval process where lenders assess the applicant’s creditworthiness and authenticate their supporting documents. A specific amount is charged for this verification, called a processing fee. It is usually a percentage of the principal amount of the mortgage, which can be up to 7%. In some cases, lenders may choose to waive processing fees, but charging a processing fee is common practice. However, it should be understood that paying an application fee does not guarantee approval of your home loan.

Mortgage administration fees

The administration fee can be considered as a variation of the processing fee. Some lenders may simply levy these, while others may divide them into processing fees and administration fees. The administration fee is usually about one percent of your home loan sanction amount and is charged after disbursement.

Stamp duties and registration fees

After registration of the deed of sale with the sub-custodian, the lender retains the original documents as security until the full repayment of the mortgage. The buyer signs a Protocol of Title Deed Deposit (MODT) to formalize this arrangement. Stamp duties and registration fees are levied in accordance with applicable national laws, which vary and are specific to each state.

Technical and legal assessment fees

Lenders assess the property in question with the help of technical and legal experts. This is done to verify the title of the home and the financial value against which a home loan can be approved for the desired amount. Most lenders charge a flat fee for this.

Documentation fees

The documentation fee you pay is used to enable verification of the relevant documents and to activate the Electronic Clearing Service (ECS). This also includes the cost of keeping the original sales document safe in a central location for the duration of the loan.

Credit score report fee

Your credit score determines your eligibility to get approved for a loan. Lenders charge credit report fees when they establish applicants’ credit scores through the credit bureau, namely CIBIL.

Mortgage term change fees

Sometimes, while servicing a home loan, borrowers may wish to extend or shorten the original term of their loan due to a sudden change in their financial situation. At these times, lenders may charge a fee to change the term of the loan.

Interest rate conversion fee

If borrowers wish to link their existing home loan to the common loan benchmark such as the RBI repo rate, lenders are likely to charge a conversion fee.

Late NDE Penalty

Any delay in EMI payments results in defaults and penalties. In this regard, most lenders charge a fixed amount, while others may levy a certain percentage on the amount of EMIs due.

Mortgage prepayment charges

The RBI prevents lenders from levying prepayment charges on individual home loan borrowers with a variable interest rate. However, those on a fixed interest rate home loan may be charged a prepayment penalty, which is usually a percentage of the outstanding loan amount.

Loan account statement fee

Borrowers can, while repaying the existing loan, consider switching the loan to a new lender who offers better services at lower interest rates. But, first, the new lender will need to check your repayment records to assess eligibility before approving the home loan balance transfer. In the absence of any documentary evidence for the same, your previous lender will charge a fee to issue copies of your loan account statement. A loan balance transfer fee will also be levied.

New Sanction Fee

Once the lender issues a loan sanction letter, borrowers must get the loan disbursed within a predetermined time frame. Failure to do so may cause the validity of the sanction to expire and one may obtain a loan sanction again by paying a re-sanction fee.

Check bounce fees

If your EMI home loan payment check bounces, you are subject to an appropriate fine.

Extra fees

In the event of default, lenders levy ancillary fees to cover the expenses associated with collecting debts from defaulters.

Summary

It is prudent for borrowers to fully understand the various fees applicable on home loans in order to better plan their finances. Since some of these fees may vary from lender to lender, check with the lender well in advance and identify these expenses to build into your loan costs.

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