- January 3, 2017
- Posted by: admin
- Category: Blogs
Hidden Home Loan charges are back in limelight as the banks, after reducing base lending rates significantly, are finding newer ways to make more money out of you. Hidden Home Loan charges are a grey area & there are no clear cut, guidelines regarding same.
In our country, transparency usually takes a back seat and regulatory bodies are also turning blind eye towards Hidden Home Loan charges. Like the amount charged, there is no standard definition of hidden home loan charges as banks keep interpreting the definitions as per their convenience.
Let’s go through few of these Hidden Home Loan charges:
The most common among all Hidden Home Loan Charges is Conversion fees. It is the amount you need to pay to reduce your Rate of Interest during loan tenure e.g. you took home loan @ 11% i.e. Base Rate of 9% + 2% mark up. Now over a period of time bank reduced mark up for new customers to 0.25% & now offering home loans @ 9.25% but you are still paying 11%. Now you can decrease your ROI only by reducing mark up from 2% to 0.25%. For this bank will charge conversion fees. It varies from 0.5% to 1% of outstanding loan amount.
MODT Charges (Memorandum of Deposit of Title Deed)
Memorandum of Deposit of Title Deed is an undertaking by the borrower that he has deposited the title documents of the property with the bank at his own wish and will, in order to secure the financing obtained from the bank. Government levy stamp duty on this document to register the same…Charges varies from state to state but is normally 0.1% to 0.2% of Home Loan amount. It is one of the most imp Home Loan hidden charges 🙂
It should not be confused with Processing Fees. Some banks charge administrative charges separately. These charges are levied to recover administrative cost of processing application. If we loosely define then processing fees refer to front end cost like DSA cost etc whereas administrative charges is levied for back-end processing of loan application. Bank might waive off processing fees but administrative charges will make up for same.
Many Banks don’t have in-house lawyers to validate legal status of the property. They hire external lawyers for this job. The fees of these lawyers are being recovered from customers under the head Legal Fees.
Valuation Fees / Inspection Fees
Before sanctioning the loan, physical inspection of the property is done to fix the property valuation. It is done to ascertain that bank is not over lending because in case of default, bank can recover their dues only by auctioning the property e.g. If property valuation is 1 Cr and bank approves loan of 1.25 Cr. In this case bank cannot recover the dues in case of default. Obviously these valuation charges are recovered from customer.
Home loan require lot of documentation like Home Loan agreement, MODT, Indexing etc. Though standard formats are used still there are charges involved in completing this documentation.
Document Retrieval Charges
Document Retrieval Charges are the charges levied at the time of loan closure/pre-closure. It is basically a cost of transferring original documents from central document repository to the borrower. Normally all original documents received by banks are divided into 2 parts i.e. (a) Most Important documents like Sale Deeds, Sale Agreement etc and (b) General Documents like Khata, NOC from housing society or association etc. Most important documents are kept in safe custody at central repository and are being normally managed by 3rd parties. General Documents are kept at Loan Location.
Suppose you availed Home Loan in Chennai from ICICI Bank Ltd. The central repository of ICICI is in Mumbai. All important documents will be shifted to Mumbai and general documents will be in Chennai. When the loan is closed, ICICI will charge document retrieval charges to transfer documents from Mumbai to Chennai. Best in class courier service is used for safe transfer. At the time of availing loan these charges are included in processing fees.
Switching Loan Package
In case you availed floating Home loan at the time of application and now wish to shift to fixed Home Loan or vice versa. Sometimes you wish to change your Home Loan package from one to another though loan remains linked to floating ROI. In all such cases bank will charge normally 0.50 – 1% of outstanding loan amount to process your request.
Changing Loan Tenure
If you to wish to increase or decrease your monthly EMI during loan tenure or change loan tenure thus resulting in change of Loan Terms, Bank might charge fees for the same.
Statement of Account
One annual account statement is free but in case you misplace or don’t receive & request another statement from bank, then bank might charge up to Rs 500 per statement.
Copy of Original Documents
It is advisable to keep 2-3 copy of original documents before submitting to bank. If you request for photocopy from bank then bank might charge for same. Charges vary from Rs 2 per page to Rs 1000 for entire set.
If you default on payment then bank will charge entire cost of recovery i.e. Recovery Charges from you. Charges may vary from Rs 250/installment, some % of recovery amount or Actual recovery expenses incurred by bank if recovery is under The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the SARFAESI Act).
Though pre-payment charges are abolished but only for floating home loans. Some banks charge pre-payment penalty if funding is not from own source i.e. 3rd party funding including take over by other bank. Pre-Payment penalty still applicable for fixed home loans or loans availed under special schemes. This head is queen of Hidden Home Loan Charges.
List of Documents
Quite strange but sometimes you might need to pay to get the list of original documents submitted by you with the bank.
Late Payment Charges
Any delay in EMI payment might be costly affair. Banks charge Late Payment Charges of Rs 250 – 500 + 2% additional interest as penalty on outstanding amount.
Please note that banks might not charge all the above mentioned Hidden Home Loan Charges. It is advisable to check with the bank about all these charges to avoid any future surprises. Sometimes most of these charges are clubbed under one head i.e. Processing Fees.