Here is an overview of the 11 charges that a borrower will have to pay on his mortgage. (Keep in mind that not all of these fees may apply to all borrowers, so read your loan documents carefully to get a full idea of the fees.)
- Connection costs: Also known as an application fee, this is the initial fee charged by a lender to assess the loan application. At this stage, the lender assesses whether the application contains all the relevant and precise information with the necessary documents for further processing or not.
- Processing fee: A loan application is assessed on several parameters during the credit underwriting process which involves KYC verification, financial evaluation, employment verification, home and office address verification, assessment credit history etc. which involves manpower and resources. A lender recovers all costs associated with the credit underwriting process through processing fees. Some lenders charge a fixed fee as the processing fee, while others typically charge a variable processing fee of up to 2% of the loan amount. For example, LIC Housing Finance charges a fixed fee of Rs 10,000 for a loan of up to Rs 50 lakh, while it charges a fixed fee of Rs 15,000 for a loan over Rs 50 lakh, according to its website. . Many lenders who charge variable fees also have a cap on these fees. For example, according to its website, HDFC charges 0.5% of the loan amount as a processing fee, but it has a cap of Rs 3,000 as the maximum amount of the processing fee it charges. According to the ICICI bank website, the bank charges a processing fee of 0.50 to 2% of the loan amount or Rs 1,500 (Rs 2,000 for Mumbai, Delhi and Bengaluru), whichever is greater with applicable GST.
- Technical evaluation fees: Lenders deploy technical experts to assess the physical health and market value of the property for which a home loan is taken out. These experts assess the property on many parameters such as legal approval, planning approval, building specifications, compliance with building standards, etc. They also determine the market value of the property by various means which also include the cost of the land and the cost of construction. While many lenders include these fees in their processing fees, some lenders charge them separately.
- Legal fees: The most important exercise for a lender is to ensure that the property they are appraising for financing should not be in legal dispute. To do this, lenders hire certified legal experts who review the relevant legal aspects such as the strength of title to the property, property lead and devaluation, certificate of no objection, certificate of occupancy, etc. , and give their final opinion to the lender as to whether they should go ahead with the loan or not. Most of the time, lenders ask borrowers to pay legal fees directly to the hired legal expert.
- Postage costs: Postage is the process of having your mortgage agreement stamped through a machine, confirming that you have made the required stamp duty payment. The franking of the mortgage contract is usually done by banks or agencies authorized by the government. This charge is only applicable in a few states of India such as Maharashtra and Karnataka. The postage costs are generally 0.1% of the value of the mortgage.
- Pre-EMI fees: After the mortgage is disbursed, if there is a delay in the borrower taking possession of the house, the lender charges simple interest called pre-EMI until the borrower takes possession of the house. , after which the EMI payment will start.
- Statutory or regulatory fees: These are the charges that are collected by the lender on behalf of the statutory bodies in the process of recourse to the mortgage. These are mainly stamp duty and GST on various fees that are collected by the lender and paid to the government.
- Revaluation costs: The sanction of the mortgage application has a limited period of validity. If your loan is sanctioned but you don’t take the disbursement for a long time, then the lender will go for a reassessment of your loan application. This period varies among lenders and can generally be up to six months. For example, HDFC charges a reassessment fee of Rs 2,000 after the end of the initial six month penalty in cases where the borrower is an employee.
- Insurance premium: Many lenders require borrowers to purchase insurance for any physical damage to property, such as fire or home insurance. Some lenders also encourage borrowers to take out a loan protection life insurance policy so that their legal heirs don’t have to worry about the outstanding loan if something happens to the borrower. So, if you decide to get an insurance policy with the home loan, you will have to pay the insurance premium – this is often a single premium policy that lenders are often willing to finance.
- Notary fees : If you are an NRI on a home loan, you may need to do additional paperwork. Your KYC and POA (Power of Attorney) documents must be notarized by Indian Embassy or local notary available overseas for which you will need to pay applicable fees.
- Arbitration fees: To start the home loan application process, if you are a POA holder of an NRI, you need to get the POA notarized in India for which you need to pay the corresponding fees.
Take a mortgage? Make sure your financial plan is not affected, ask yourself these 5 questions …
Can you afford a home loan?
You too, like many others, might be tempted to put those interest rates at a decade’s low on home loans and make the most of the lower home prices before things start to pick up and go. get back to normal. While these external factors seem attractive, the decision to take on more debt to buy a home also depends on certain factors about you and your finances.
For many, buying a home means stretching finances to an uncomfortable limit and stretching too thin in the process. Before you apply for a large home loan, make sure you are on a solid footing when it comes to your personal finances and goals. Ask yourself these five questions about your emergency fund, down payments, EMIs, and the status of other financial goals, to make sure your mortgage doesn’t end like a noose around your neck.