Home loans come with a burden of fees and charges related to the sanctioning of the amount. Any additional service beside the amount of the loan itself that the lender gives will be charged for. However, these charges are negotiable and in some cases can even be waived off.
Whatever the fee, if you do not understand what it is for, you have every right to ask for an explanation and you could even go ahead and negotiate the rate charged before you agree to it.
Here are explanations on some of the most common home loan fees charged by lenders:
1. Loan origination or processing fee
This is an upfront fee charged by the bank on processing your application for the loan. It is usually a fee to put the loan in place and will be charged as a percentage of the loan amount applied for.
2. Administrative fees
As the name suggests the administrative fees are charges associated with maintaining the records or other administrative charges.
There are also recurring annual service charges, whether or not you make changes to the loan agreement, so as to update your home loan records.
3. Document charges
These are fees charged on retrieval of documents during the closure or pre-closure of a loan from the central documentary repository of the bank to the borrower.
This is because the most important documents like sale agreement and deed are usually maintained at a central location and not at your bank branch. In order to deliver these documents, the bank will use the most efficient courier services as a safety measure.
Additionally, it is wise to make copies of the original documents that you submit to the bank, because if you ask for a photocopy later, the bank may charge you for it. Same goes for losing your first copy of the statement of account.
4. MODT charges
A Memorandum of Deposit of Title Deed (MODT) is executed for a mortgage by depositing of related title deeds like ownership documents, sale deed, etc. It is a method of pledging a real property as deposit for securing a loan.
There will be government stamp duty levied on this deed which could vary from state to state and is a percentage of the home loan amount.
5. Late payment fee
This is a penalty charged there is a delay in the EMI payment. The charges include a fixed amount along with interest on late payment.
6. Charges on changing the loan tenure
During the loan tenure, if you wish to increase or decrease your EMI, it would also change the tenure of a loan, resulting in administrative work that the bank will charge you for.
7. Switching to a different loan package
During the loan tenure, if you want to switch from your existing floating rate of interest to fixed rate or vice versa, a fee will be charged to process the change of your home loan package from one to another. It is usually one percent of the outstanding amount of the loan.
8. Restructuring of loan
A borrower may opt to modify the terms of the loan in their favour in order to receive a lower interest rate or a lower monthly payment. This involves legal and administrative charges to execute the change.
9. Legal fee
Some banks hire external lawyers to validate the legal aspects of the loan like that associated with the house verification and executing a loan agreement.
10. Technical inspection fee
The bank will inspect the property physically to get a valuation. This is done so that the bank can ascertain whether or not it is over lending and can recover the amount in case of default.