Home Loan Hidden Charges:Â Banks levy many hidden charges while giving loans, which no one is even aware of. Banks levy many types of charges while giving home loans. Which are known only after the loan is finalized.
Home Loan Hidden Charges: Banks levy many hidden charges while giving loans, which no one is even aware of. Banks levy many types of charges while giving home loans. Which are known only after the loan is finalized. Refinancing or balance transfer of home loan can be a good option in India, especially when interest rates are low. This can reduce the interest rate of your loan and reduce your EMI. But before you decide to refinance, it is important to understand the hidden costs associated with this process. These costs can reduce your savings, so it would be right to know about them.
Processing charges
According to Atul Monga, CEO and co-founder of Basic Home Loans, taking a new loan while refinancing can incur a processing charge of 0.5% to 2% on the total loan amount. For example, if you have taken a loan of ₹ 20 lakh, you may have to pay a processing charge of ₹ 10,000 to ₹ 40,000. However, some banks may also offer discounts under promotional offers, but these discounts are rarely available.
Technical and legal charges
The new bank or lender checks the condition of the property and legal documents. There are two main types of charges for this:
Legal charge: This fee is paid to the lawyer or legal team who checks the title of the property. This charge can be between ₹ 5,000 to ₹ 15,000.
Technical charge: This charge is for the valuation of the asset. This charge can range from ₹3,000 to ₹5,000.
Registration Charges and Stamp Duty
In some states, the existing loan agreement has to be stamped and registered again while refinancing. Stamp duty depends on the value of the property and can range from 3% to 7%. Apart from this, registration charge can also range from ₹50,000 to 1%. In some states, this charge can be higher, such as in Himachal Pradesh, it can reach up to 8%.
Prepayment Penalty
If your existing home loan is on a fixed interest rate and you want to repay it before time, then you may have to pay a prepayment penalty. This penalty can range from 2% to 4% of the outstanding loan amount. However, prepayment penalty is not applicable on loans with floating interest rates, as RBI has banned it.
Also Read-Â Home Loan Interest Rate 2024: Latest Home Loan interest rates of these 9 banks including SBI, Check here
Administrative costs
The refinance process requires several documents, such as identity proof, income proof, property documents, and existing loan statements. Submitting these documents and completing the process costs time and money. Some banks also charge an administrative charge.
Difference in interest rates
While refinancing, make sure to match the interest rate of the existing loan and the new loan. If your loan tenure is less, then keep in mind whether refinancing can be beneficial despite the lower interest rate.
Impact on credit score
Every time you apply for a loan, the lender checks your credit score. Checking your credit score frequently can affect it and may lead to difficulty in getting a loan in the future.
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