Home Loan Charges You Need to be Aware of ?

05 MAY, 2021

A home loan is a long-term financial obligation and responsibility. Therefore, you must evaluate all the aspects of the home loan carefully before availing it. Be it the terms and conditions set by the lender, or various types of home loan charges, it is imperative that you are aware of all the details, as missing out on a minor detail can be detrimental in the long run.

While you may be aware of the common home loan charges such as the application processing fee, stamp duty charges, underwriting fee, etc., there are a few lesser-known charges that we will be explaining in this article. Some of these charges can be negotiated with the lenders, while some might not be applicable for everyone.

Types of Home Loan Charges

Processing fee

The home loan processing fee is a non-refundable fee levied by the lender to process your loan application and carry out other related formalities such as document verification, performing credit check and property appraisal, etc. The processing fee may vary from one lender to another, ranging from 0.50% to 1% of the loan amount. When you apply for a home loan, you’ll have to pay the processing charges regardless of whether your loan is sanctioned or not.

Prepayment charges

If you wish to close your home loan before its predetermined tenure by making a part or full prepayment, lenders may charge a prepayment penalty to make up for the lost interest income. Different lenders have different prepayment clauses and charges. Therefore, it’s advisable to read the loan documents carefully and note the prepayment charges before applying for a home loan with a lender.

It is to be noted that the Reserve Bank of India has abolished prepayment charges on home loans with floating interest rate. However, if you opt for a fixed rate home loan, most lenders may levy pre-payment charges.

Lastly, before going ahead with a home loan prepayment, you must calculate the difference between the prepayment charges and future interest saved. It’s advisable to prepay the outstanding home loan only if the amount saved is reasonably high.

Late payment penalties

After availing a home loan, it should be your prime responsibility to make timely repayment of the loan. In case you fail to pay your EMIs on time, you would be charged a late payment penalty. Moreover, late payments would also affect your credit score. Thus, to avoid such consequences, you must always be on track with your EMI payments. Plan your monthly budget keeping the home loan EMI in mind.

Conversion fee

If you wish to change your existing home loan interest rate to a lower rate, you can do so by paying a conversion fee. Conversion fee is simply the amount paid to reduce your home loan interest rate. The conversion fee depends upon the difference between the new and old interest rate. If there is a major difference between the two, you may have to bear a higher conversion fee. Moreover, your loan tenure could also be affected if you change the rate of interest after the loan is sanctioned.

Administrative charges

The administrative fee is charged by the lender for record keeping and other administrative costs related to processing of the home loan application. This also includes the annual fee for updating your home loan records.

Indemnity cost

Some lenders would ask you to insure them from certain risks, such as delay in receiving approval for construction, property tax not paid by the seller, etc. This is known as the indemnity cost.

It’s essential that you make a note of the above-mentioned charges levied on a home loan to avoid any inconvenience at a later stage. Moreover, knowing these charges will help you determine the overall cost of borrowing. With Kotak Mahindra Bank, you can easily avail a home loan at a competitive interest rate, low processing fee, and zero hidden charges. So why wait? Take your first step towards purchasing your dream home by applying for a home loan with Kotak Mahindra Bank, today.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.