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Home Loans and Hidden Costs to be Aware of

Home Loans and Hidden Costs to be Aware of

A lump sum amount of money taken from any financial or banking institutions to buy a house is known as Home loan or Housing Loan. There are basically two types of Interest rates namely- Fixed and Floating. The consumer repays the loan amount as per their chosen type of interest in the form of Equated Monthly Instalments (EMIs) for the desired tenure period. As the earning capability of the average Indian family has increased, there has been a continuous increase in the desire to own a house which has resulted in a consistent rise in the prices over the last few years. This is true not just for the Metropolitan cities, but also for smaller cities across India. To meet this requirement, the prospective home buyers have multiple options to seek a home loan from either banks or Non Banking Financial Institutions (NBFCs).

Home loan is considered as one of the cheapest loan availed for its interest rate, tenure and repayment cycle. It is a tangible asset, with course of time the value appreciates.

Home loan is also taken as an investment. So one has to be aware of the risk involved and the additional charges that may get levied once the loan is sanctioned. Home loan is a long-term association from anywhere between 10-35 years with the lender, which can be either banks or NBFC’s. Anyone applying for home loan has to be cautious about the interest rates and the hidden costs or related charges which attached to it. Before applying for a home loan, applicant should be well aware of these costs involved.

Let’s have a look at the various costs involved in taking a loan. You can do a prior Quick loan online search.

Application Fee: Application fee is taken by the lender to meet the preliminary expenses required for verification of the loan. It can be anywhere between Rs. 1000 – Rs. 5000 approximately.

Processing Fee: Processing fee covers the cost of credit appraisal which can be between 0.50% – 1.00% of the loan amount and the applicable taxes. The type of loan, income and profile are verified.

Valuation Charges: The property needs to be assessed in terms of legality and for fair valuation purpose.

Administrative Fee: It is charged after the loan gets sanctioned.

Balance Transfer Charges: Once the loan has been approved, and the borrower wants to change their lender for another to avail cheaper interest rates, they will have to pay the home loan balance transfer fee.

Pre-payment Charges: When a borrower pre-pays outstanding loan amount in full or in part the prepayment charges are levied by the banks and Non Banking Financial Companies (NBFC’s). Pre-payment fee is to be charged only on fixed rate home loans.

Legal Fee: Banks and NBFCs charge legal fees for scrutinising the legal documents which include agreement of sale or purchase of the property.

Franking Fee: Most of the banks usually include this fee under processing fee. This is the stamp duty payable for the property agreement with the builder or the seller. It is around 0.1% to 0.2% of the loan amount. However, the stamp duty charge is applicable only in few states.

Notary Fee: In case of a Non Resident Indian (NRI) applying for a home loan, the Know Your Customer (KYC) and the Power of Attorney (POA)is required to be notarized by the Indian embassy or any local notary which is located abroad.

CERSAI Charges: The purpose of Central Registry of Secularization Asset Reconstruction and Security Interest (CERSAI) is to check and prevent online frauds in lending against equitable mortgages, here cases of taking multiple loans on the same asset or property is looked for. To prevent such occurrences, a CERSAI charge is levied.

Recovery Charges: This charge is levied If any borrower fails to repay the Equated Monthly Instalment (EMI) for over a month. An additional recovery fee is charged from the defaulting borrower.

Documentation Fee: For getting the loan agreement signed and the Electronic Clearance Service ( ECS) activated a fee of Rs. 500 – Rs. 2000 is charged.

Before applying for a home, it is always safer to check loans online for these hidden bank charges. Compare loans online and for your benefit, choose the lowest interest rates.


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