Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
11 Hidden Costs Associated With Your Home Loan - Outside View by PersonalFN

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

11 Hidden Costs Associated With Your Home Loan
Jun 16, 2017

Buying a house is as much an emotional decision as it is a financial one. Owning a house is both a matter of pride as well as a necessity. As the common adage goes - "to have a roof over one's head" compels one to buy a house as a security. With the rising trend of nuclear families, youngsters are under tremendous pressure to purchase a house. Real estate market players, too, have a knack of playing around with a buyer's emotions. They do not miss any possible opportunity to do so. With soaring property prices, most home buyers have to opt for a home loan.

Availing a home loan can seem like a daunting process. It involves so many facets such as identifying the right bank, securing a good interest rate, being informed about the varied fees, extensive documentation and procedures it entails, and so on. Atulya, a 30-year old Digital Designer, was under pressure from his parents to buy a place of his own, as security, hedge against uncertainty. After the much needed research. he was shocked to know that the home loan Equated Monthly Instalment (EMI) would not be the only expense incurred on the loan.

He will have to bear the burden of at least 10 other expenses. Availing of a home loan is not only a very long and taxing process, but it also includes multiple costs, albeit hidden.

Below are 11 costs associated with a home loan: -

  1. Processing Fee

    This is the fee charged for processing your loan. It is around 0.5% - 1% of your loan amount. The percentage that is charged depends on the borrower's profile, income, and type of loan.

  2. Legal Fee

    Some banks and financial institutions charge this fee to scrutinise legal documents such as sale agreements, etc. Some corporations might include this cost into the processing fee.

  3. Technical Valuation Charges

    Your lender will carefully scrutinise the property that you intend to buy. They will send an expert, could be a bank employee or an architect or an engineer, who will visit the site to ensure legality and fair value of the project. They evaluate your property on a number of criteria such as age of the building, quality of construction, etc. The technical valuation charge is an upfront payment, before sanctioning the loan.

  4. Documentation Fee

    Some lenders also charge documentation fee separately or under the processing fee category. This charge is for maintaining your documents such as loan agreement, ECS mandate, etc. Some lenders may charge around Rs 500- 2000 towards the documentation fee.

  5. Franking Fee

    Franking is the process of confirming the payment of stamp duty. So, when you pay stamp duty for the sale of agreement or purchase of loan, an authorised bank or a franking agency may stamp your document to certify stamp duty payment. Franking charges differ from state to state and can be in the range of 0.1% - 0.2% of your loan amount.

  6. Notary Fee

    If you are an NRI, then you and your Power of Attorney's (POA) KYC details need to be notarised by the Indian Embassy or a local notary available abroad.

  7. Cheque/ ECS Dishonour Charges

    If at any point of time you dishonour your EMI, the lender will charge you for it. This charge may vary from Rs 250 per instalment or some percentage of your recovery amount. This will not only add to the expenses, but will also affect your credit score.

  8. Loan Pre-payment Fee

    When you pre-pay your loan, the bank loses out on the opportunity to earn from your interest payment. Hence, to indirectly recover the cost, the bank might charge you a penalty. However, the Reserve Bank of India has abolished this charge for floating-rate home loans. Pre-payment charges are still applicable on fixed rate loan or loans availed under special schemes and if the payment is sourced through third party.

    This charge may vary from lender to lender and the type of loan as well.

  9. Document Retrieval Charges

    Document retrieval charges are charges levied at the time of loan closure/ pre-closure of loan. This is a cost for transferring your original documents from central repository to the borrower.

    Your loan and property documents are kept in safe custody at a central repository. Suppose you availed of a home loan at the bank's branch in Pune and its central repository is at Mumbai, then the loan and property documents are kept at Mumbai. At the time of your loan closure, the bank will transfer your documents from Mumbai back to Pune, and hence this document retrieval cost is charged to you.

  10. Charges for Statement of Account

    One annual account statement of your loan account is free, but in case you need another statement then the bank might charge you upto Rs 500 for statement generation.

  11. Balance Transfer/ Resale Home Loans

    If you decide to transfer your balance amount from one bank to another or from one loan scheme to another, you will be charged with a transfer fee.

    Also during the loan application process, say you opted for a floating rate loan and now you want to change it to a fixed rate loan or vice-a- versa, you will be charged this fee.

To Sum-up...

Surely, the charges linked to the home loan were many, but this did not stop Atulya from buying a house. With proper planning and information, he converted his dream into a reality.

A home loan is actually one of the best ways to build up your assets using a liability. You are effectively putting down some of your own money (the down payment) and gearing the rest (i.e. someone else is paying for it upfront, you are paying it back in instalments).

Buying a property is something that all of us want to do at some point in our lives, and a home loan is the best way to do that.

Remember to insure the loan and also increase your contingency reserve to include enough liquid funds for at least 3 EMIs, for use in case of a financial emergency.

Similarly, if you are worried about your finances and do not know where to start, you can seek guidance from our experienced financial planning team.

Also read the 8 Things You Should Know About Home Loans before you begin your journey.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Equitymaster requests your view! Post a comment on "11 Hidden Costs Associated With Your Home Loan". Click here!


More Views on News

Two Meetings That Nailed the Idea of Owning Brilliant Smallcaps Without Buying Them (The 5 Minute Wrapup)

Mar 22, 2018

Certain blue chips hold the potential of delivering returns comparable to small-cap stocks. With these stocks, you can get the best of both worlds.

What They Forgot to Tell You About Sensex at One Lakh (Profit Hunter)

Nov 29, 2017

Stocks that could beat Sensex returns in the long term.

Is Your Bank Gambling With Your Money? These Banks Should be Declared Dangerous... (Profit Hunter)

Jul 17, 2018

Tanushree Banerjee bets you would not want to leave your money with these unsafe banks...

Your Rescue Plan from the Cave of Poor Quality Stocks (The 5 Minute Wrapup)

Jul 17, 2018

And there will be no getting trapped with Amtek, Vakrangee, or Manpasand like stocks.

2019 Lok Sabha Elections and the Perils of Populism (Vivek Kaul's Diary)

Jul 17, 2018

Evidence from around the world shows that populism can only lead to more populism and this is clearly not good news for the Indian economy.

More Views on News

Most Popular

The Real Truth About India's FDI, Beyond WhatsApp(Vivek Kaul's Diary)

Jul 4, 2018

The FDI numbers do not look very impressive once we adjust for repatriations as well as the overall growth in the economy.

How to Avoid a 90% Loss Suffered by This Super Investor(The 5 Minute Wrapup)

Jul 12, 2018

Blindly following super investors is a dangerous game to play. Here's how you can avoid such mistakes.

The Answer to Your Wealth Worries: Small Caps (Especially Now)(Profit Hunter)

Jul 10, 2018

If you're worried about the markets - you are on the wrong track. This is opportunity - put your wealth-building hat on, instead - Richa shows you how...

New Fund Offer - ICICI Prudential Pharma Healthcare and Diagnostics Fund - Should You Invest?(Outside View)

Jul 6, 2018

ICICI AMC launches an open -ended equity fund following Pharma, Healthcare, Diagnostic and allied theme.

When Disappointment Panda is Around. Buy Quality Stock like This!(Chart Of The Day)

Jul 6, 2018

Buy Companies that can fight all kinds of Pandas and Bears in the long run.


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jul 17, 2018 03:37 PM