Most customers fail to notice the clauses mentioned in the fine print of a home loan and thus end up paying several hidden costs during the repayment period which is never mentioned to them at the time of taking the loan. The net increase in the total amount repaid can go up substantially on account of all the hidden costs by the time a home loan gets over or is prepaid in between. Here are some of the additional costs that is borne by the borrower but not clearly explained to him at the time of the loan sanction.
Interest on Period before EMI Commences: There is certain gap between the time the actual disbursement of the first installment of the loan and the start of the EMI. There is certain interest levied by all financiers for this period called generally as the “broken period interest”.
Processing Fee: There is a certain amount of money charged by all housing finance companies which includes a processing fee and some administrative charges. The exact amount for this fee varies from bank to bank but is typically lower for public sector institutions as compared to private lenders. In some cases this fee is refunded back after the sanction of the loan.
Legal Valuation Fee: all housing finance companies carry out a thorough legal verification of the property for which the home loan is being taken before sanctioning the loan. The charges incurred towards the fees of the lawyer undertaking this kind of verification is passed on to the borrower as legal fees.
Prepayment Penalty: In case the borrower decides to prepay the home loan before completion of the agreed tenure the banks will charge a prepayment penalty which can be as high as 2% of the outstanding amount at that time. Additionally a service tax is also charged on the prepayment penalty. However this clause has been waived off for floating interest rate home loans as per directive of the RBI.
Conversion Charges: When a borrower decides to convert the home loan from a fixed rate type to a floating rate type or vice versa, the banks charge a sum as conversion charges which may add up to about 2% of the outstanding amount at that time plus an additional service tax as applicable.
Rescheduling fee: When there is a significant change in the interest rate by the bank or the borrower decides to pre pay some portion of the outstanding loan amount the tenure and EMI structure of the home loan can be rescheduled to adjust to new circumstances. On such occasions the banks levy a rescheduling charge which has to be borne by the borrower.
Miscellaneous Fees: there are several types of miscellaneous fees which the banks may charge the customer that are not disclosed earlier. Some of such fees include charges for obtaining a duplicate statement of account and duplicate of original documents that have been submitted by the borrower at the time of taking the loan.
It is in the best interest of the customer to understand the details of all such hidden costs right at the time of loan processing in order to avoid inconveniences at a later stage.