Types of Home Loan Charges

When you plan to buy a house by availing a home loan, the biggest cost component you are worried about is the interest amount. But apart from interest charges, you will have to pay for a plethora of other charges as well. Here’s a list of fees banks levy on home loan borrowers:

1. Application fees

This fee is charged by the bank for processing your application. It will be charged upfront irrespective of the fact that whether your loan application is accepted or rejected. It is non-refundable and can go up to 1% of the loan amount. Make sure that you do your research before applying for home loan as this fee is non-refundable.

2. Processing fees

This fee is charged by banks to verify your documents as the process involves people effort and legal charges. The processing fee varies from bank to bank and usually ranges between 0.5% and 1%.

3. Legal fees

Generally, external lawyers are appointed by financial institutions to verify the documents submitted by you. The fee charged by the lawyer is passed on to you by the financial institution. However, for those properties which have already been approved by the bank, it may not charge the legal fee.

4. Conversion fees

It is the fee that you need to pay to reduce the interest rate. Suppose, you availed home loan at 11% in 2012 and now the bank has reduced the interest rate to 10.25%. So, in order for you to benefit from the drop in interest rates, you will have to pay a conversion fees that will range between 0.5% and 1.0% of the loan amount.

5. Memorandum of deposit of title deed

When you avail a home loan you have to sign an undertaking stating you have deposited the documents of the property with the bank at your will to secure financing from the bank. Government levies stamp duty on this document to register the same and depending on the state you are buying the property in, the duty can vary between 0.1% and 0.2% of the home loan amount.

6. Document retrieval charges

When you avail a loan you have to deposit all your documents for home loan such as the sales deed and the sale agreement with the bank. The bank keeps these documents in a central safe repository which is generally managed by a third party. The central repository may not necessarily be located in the same place as the bank branch. Therefore, when you close or pre-close the loan, the bank charges you document retrieval fee. These charges are generally part of processing fees.

7. Prepayment penalties

Although no prepayment penalties are charged in case of floating-rate home loans but the penalty is levied on fixed-rate home loan. If you decide to make a prepayment towards your fixed-rate home loan, you will be charged a prepayment penalty by the lender which is usually about 2% of the prepaid amount.

8. Switching charges

If you want to change from floating-rate home loan to fixed rate or vice versa, you will have to pay switching charges. These charges vary from bank to bank and typically range between 1% and 2% of the outstanding loan amount.

It is imperative that you know these charges. In fact you should ask about any fee or charge that is levied by the lender on you. By doing this you can avoid being over-charged.