Financial emergencies can arise at any moment. You can always apply for a mortgage loan on your house or property. A mortgage loan will give you a quick influx of cash to deal with any problems. However, these loans have hidden charges that most people do not know. This article will highlight the most popular fees charged with mortgage loans.
What are the most common charges on a mortgage loan?
1. Processing fees
Lenders have many processes to complete between receiving your loan application and giving their final approval. The lender’s staff will carefully examine your application and supporting documents. They will do so to ensure its authenticity.
The lender will charge you a processing fee in exchange for this service. Some lenders impose a flat rate, while others may charge you a percentage of the principal amount.
For example, some lenders charge processing fees ranging from 1% to 10% of the loan’s principal. Other lenders can charge a processing fee of up to Rs. 3,000. To entice borrowers, some lenders will even forego processing fees.
Even if you pay the processing fee, it does not mean your loan application will be approved. The processing fee is non-refundable. Hence, you will have to pay the charge regardless of whether the loan gets approved.
2. Stamp duty and registration fees
You need to submit the original property documents, such as the registration document, to the lender. This document must be registered under state legislation. It is subject to stamp duty and registration fees. Stamp duty and registration fees range from 0.10 to 0.20% of the loan amount, depending on the buyer’s location.
3. Goods and service tax (GST)
The bank provides you with various services in exchange for your mortgage loan. Hence, the transaction is subject to goods and service tax (GST). These can be processing fees, administrative fees, legal and technical assessment fees, etc. These are subject to GST, but the loan amount is exempt. The GST is 18%.
4. Technical/legal assessment fee for the property
The bank hires a third-party agency for legal and technical inspections. They do this as part of their mortgage loan application process.
- The lender uses the legal review to see if there are any legal issues with the property or the title of the land.
- Lenders determine whether to lend money to a borrower by doing a technical analysis of the house. They do this to see if it is worth the asking price.
The banks must pay for the services of external consultants for this process. Hence, the expense falls on the borrower. For this service, most banks will charge a set fee. The fee may range anywhere from Rs. 5,000 to Rs. 10,000. High-value properties often incur more charges since they demand extensive technical and legal reviews.
As the situation may be, fees for external opinions from attorneys or technical valuers are paid on an actual cost basis. If you need legal or valuation advice, the bank advises you to pay the lawyer or expert directly.
5. Documentation charges
Lenders may charge a documentation fee of between Rs. 500 and Rs. 2,000 to cover the costs of getting the necessary paperwork signed and the electronic clearing service (ECS) set up.
An additional fee is required for the preparation of paperwork. After the deed is recorded at the sub-office, the registrar, you submit the original document to the bank. The branch then sends this document to a secure location, where it will remain for the loan tenure. This is a costly process that banks typically outsource to other organizations. Thus, the borrower will be responsible for this cost.
6. Fees for credit reports
Your credit score will determine whether or not the lender grants you a mortgage loan. Lenders will request a statement of your credit from an external agency. This is subject to fees. Therefore, you will also be charged a flat rate for the credit reports. Credit report fees vary between Rs. 500 and Rs. 1000.
7. The conversion cost of a loan
The Reserve Bank of India (RBI) routinely adjusts policy rates to ensure end-users may rest easy. But, banks have been slow to pass on the advantages of these reductions.
While banks have been using the repo rate benchmark established by the RBI to price loans as of October 2019, a borrower whose loan is associated with the prior MCLR regime will continue to service his debt based on this benchmark alone. Worse, many senior citizens still make mortgage loan payments under the old base rate system.
If you go to your bank to have your current loan matched to the new lending standard, the bank will do it, but it will charge a fee. The fee is called the conversion fee.
The conversion fee can be between 0.25 and 1.5% of the principal outstanding plus tax.
8. Penalties for late monthly instalments
You must pay your EMI on time. You will be charged a late fee if you miss the due date. Some financial institutions impose a flat fee for late payments. In contrast, others charge a percentage of the EMI. A late payment fee is usually around 1–2% of the EMI amount.
9. Loan prepayment penalties
RBI has decided that people who take out a mortgage loan with a variable interest rate won’t have to pay a penalty if they pay it off early. However, this is not the case for homeowners who have locked in a fixed interest rate on their loans.
The lender will impose a prepayment penalty on you if you decide to pay off your loan early. In some cases, this may be a fixed percentage of the total loan balance. The prepayment penalty is around 0.5–3% of the total outstanding amount.
A mortgage loan can give you access to funds. This article has highlighted all the fees associated with a mortgage loan.
There are numerous advantages to applying for a mortgage loan, such as shorter processing and documentation times, many repayment terms, the option to transfer the loan’s balance to another party, and the ability to make additional principal payments or partial prepayments.