Banks and Housing Finance companies are finding new ways to extract more money from you. This scenario has become very common these days. When you apply for home loan there are few extra charges you are not even aware about
- Conversion Fees
Conversion fees refers to the charges which the home loan borrower has to incur while switching his type of loan. During the loan tenure the applicant is allowed to change the type of interest rate from fixed to floating rate and vice-versa. People switch in order to benefit from lower interest rates but are unaware of the hidden conversion charges.
You can reduce the interest rate by paying a conversion fee of around 0.5-1% of the outstanding loan amount. For Ex. If you have applied for a loan and interest rate was fixed to 12% but it can be reduced to around 11.50% over time by paying the conversion fees.
- MODT Charges (Memorandum of Deposit of Title Deed)
Memorandum of Deposit of Title Deed is an undertaking by the borrower. This document specifies that he has deposited the title documents of the property with the bank at his own will. This is done to secure the financing obtained from the bank. The Government levies stamp duty on this document for registering the same. Normally the charges are 0.1% to 0.2% of Home Loan amount but they can vary from state to state.
- Document Retrieval Charges
Document Retrieval Charges are levied at the time when the loan is at closure or pre-closure stage. These are the charges which the bank takes from the customer in return of transferring the borrower’s original documents from central document repository to him. All the documents which the bank takes from the borrower are divided into two parts
(a) Most Important documents like Sale Deeds, Sale Agreement etc and
(b) General Documents like age proof, NOC from association etc.
The documents categorized as most important documents are kept in safe custody at central repository which is managed by 3rd parties. The documents called as the General Documents are kept at Loan Location.
For Eg. Mr. Mohan Rao availed a Home loan from Axis Bank in Hyderabad. The Central Repository of Axis Bank is in Mumbai. Therefore the most important documents the borrower submits with the bank at the time of home loan application are sent to Mumbai and the general documents are kept in Hyderabad itself. At the time of closure the bank charges retrieval fee to fetch the most important documents fromMumbai using the best in class courier services which are completely safe for the transfer.
- Administrative Charges
Usually the administrative charges come under the processing fee but some banks charge it separately. Therefore, it should not be confused with processing fees. These charges are imposed while applying for the loan and are not refunded. These are levied for back end processing of the application and can vary from bank to bank. Some banks keep a maximum limit of Rs. 5000 some take 1% of the loan and some waive it off and include it in the processing fee.
- Legal Fees
In most cases banks have their own team of legal advisors but in Banks like SBI, Central Banks, outsourced agents are used to validate legal status of the property. The payments to be made to these lawyers is recovered from the borrower as legal fee.
- Documentation Charges
When applying for Home loan a lot of documentation is required like Home Loan agreement, MODT etc. In the documentation the standard formats are only used despite of which the bank charges documentation fee for completing the documentation.
- Changing Loan Tenure
Sometimes during the loan tenure we wish to change our monthly EMI maybe due to decrease or increase in the income. For this proper documentation is done and the bank might charge a fee for the same.
- Statement of Account
Statement of Account is issued annually to the borrower stating the account details.One annual account statement is free but in case it is misplaced or not receivedthen the bank charges a fee of around Rs. 500.
- Copy of Original Documents
A copy of original documents is advisable to be kept with one self as if during the loan tenure a copy is asked from the bank, then they might charge you an amount of around Rs 1000.
- Recovery Charges
If you default on payment, the bank will have to go through technical procedures to recover the mortgage value. For these technical procedures the customer has to pay to the bank. Each bank charges a different amount, therefore no standard amount can be quoted here. The amount is determined keeping in mind different variables likevalue of mortgage, principle loan amount, legal charges relating to recovery, etc. The total amount of recovery is borne by the borrower, according to the SARFAESI act, 2002.
In case you pay off your loan before the end of the tenure the bank may charge you some amount for the same. Though RBI has banned prepayment charges on home loans with floating rates of interest but in the case of fixed rate, prepayment charges are applicable. The amount may vary from bank to bank.
Late Payment Charges
Also any delay in EMI payment might prove to be very costly. The Banks charge Late Payment Charges of Rs 250 + 2% additional interest as penalty on amount due.
Mentioned above are all the important home loan hidden charges. Hope the article give you enough knowledge about these and you can safeguard yourself from paying extra charges to the bank which come as a shock to you or which you are not supposed to pay.
Good and understandable.
Good and understandable.