When looking to buy a house, the price of the property is one of the first things you check to find out if it fits into your budget. Next, you’ll probably look at the interest rate on your Home Loan.
However, you have to remember that the costs don’t end there. There are additional costs that could scale up your cost of acquisition. While some charges are commonly known, some are not so obvious. So, while weighing the costs of your Home Loan, don’t just look at the interest rates.
Here are some charges associated with Home Loans that you must consider while buying a house.
Memorandum of deposit of title deed (MOD) charges
This charge is associated with mortgaging of the property and is one of the most significant additional costs involved when taking a Home Loan. Banks typically charge between 0.1 and 0.5% of the loan amount as an MOD fee. Borrowers need to submit the documents of the property with the bank to get the loan and this practice ensures that the mortgaged property is not sold fraudulently. It also deters multiple mortgaging of the same property. If your Home Loan amount is Rs. 50 lakhs, you would have to cough up Rs. 25,000 as an MOD fee.
This fee is charged for processing the loan application and is applied even if the loan doesn’t get sanctioned. The fee usually ranges from 0.5% to 1% of the loan amount. However, banks sometimes set a ceiling on the processing fee. This charge is levied irrespective of whether the loan gets sanctioned or not and is non-refundable. Often banks come up with a scheme of ‘zero processing fees’ to attract customers.
Additional Reading: How To Reduce Interest Rate Costs On A Home Loan
Loan conversion fees
With the interest rates falling, people are currently converting their Home Loans to floating interest rates. But borrowers need to keep in mind that if they convert loans with a fixed interest rate to a floating rate, a hefty penalty is levied on the outstanding amount. The penalty ranges from 0.5% to 1.5%. For example, if your outstanding loan amount is Rs. 50 lakhs, you would be charged Rs. 50,000 (@1%) for shifting to a floating rate system. You must keep the penalty charges in mind before going for such conversions.
Legal and technical fees
Banks also charge legal and technical fees which are directed towards the cost incurred in getting legal and technical opinions from experts before sanctioning the loan. The charges are around Rs. 5,000 to Rs. 10,000. These charges are sometimes included in the processing fees. However, if the banks offer loans with ‘zero processing fees’, these charges are levied separately. You can negotiate with your bank to reduce the amount.
Additional Reading: Hidden Home Loan Tax Incentives
Fees for list of documents (LOD)
At the time of issuing a Home Loan, banks take all the original documents of the mortgaged property. Going forward, if the borrower requires a copy of these documents, banks may charge LOD fees, which range between Rs. 200 and Rs. 500. So, it is highly recommended that you keep a copy of all the documents before giving them to the bank to avoid such charges in future.
Additional Reading: All About Your Home Down Payment
Apart from the above-mentioned charges, banks may charge late payment fees if the EMI is delayed and a penalty if the loan tenure is increased or decreased. They may also charge fees for periodical statements if you request for it more than a certain number of times. All of these lesser known charges add up to form your borrowing cost. So, make sure you go through the terms and conditions well before you decide on a loan.
Home-buying is a complicated process with many little moving parts. It’s important not to be caught off-guard by the various expenses that crop up during the buying process. This list of Home Loan charges will help you make an informed decision while calculating your loan requirements.