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Learn about these extra charges before taking a Home Loan
Even a layman in personal finances knows that home loan is the cheapest loan lent by the banks. Not only is its interest rate very low and tenure very long, but its repayment cycle is also very flexible. And given its importance, it almost dead sure that one has to take a home loan at least once in a lifetime.
If the loan is so important, it also becomes imperative to know complete A to Z about home loans. Not only about its interest rate and repayment cycle but also the extra and often hidden charges attached to it.
Following are some extra charges that a bank may levy upon you before giving you a home loan:
Application Charge: The verification processes of the application comes with a charge of itself. Banks charge between Rs. 1000 – Rs. 5000 as application charge before taking your application.
Processing Charge: After verification, the bank initiates processing the home loan application. The processing charge may cost an applicant between 0.50 per cent – 1.00 per cent of the loan plus taxes.
Administrative Charge: If processing charges are the charges before loan approval, then administrative charges are the charges after the approval of the loan. The charge may change along with the loan size and borrower's profile.
Balance Transferring Charge: The interest rates are relatively high in saving accounts than current accounts. Hence, to lower the interest rate, customers request banks to transfer the loan in their current account. Banks charge a little amount of money for that which is called balance transferring charge.
Legal Charge: The legal documents involved in the process also cost customers some money. It is levied by the banks and NBFCs (Non-Banking Financial Companies).
Prepayment Fee: If there are outstanding loans of the borrower, he/she has to pre-pay it in full or in part. Prepayment fee is charged by banks and NBFCs.
Stamp Duty Charge: Also called a franking fee, it is charged on the builder or seller of the property. It is just a nominal charge that ranges between 0.1 per cent to 0.2 per cent of the loan.
Notary Charge: If the borrower is an NRI then the Indian Embassy, in the country in which the NRI borrower is living in, will have to complete KYC (Know Your Customer) and the POA (Power of Attorney). There are some charges attached to that process.
Documentation Charge: Like Franking fee, documentation charge is also just a nominal charge levied upon the borrower to get the final papers signed and cleared.
Recovery Charge: If in case any borrower is unable to pay the EMIs, the lender can take certain actions to get the money. For those 'actions', the lender can levy certain charges on the borrower called the recovery charge.
If you add up these charges, they do not cost the borrower more than 2%-3% of the loan. The borrower need not worry about them, though just knowing a little about them can come handy at times.