Cost of home loan is the price that you have to pay to bank to process your loan. There are some un-common fees that may surprise you when you are ready to sign the papers.
Home Loan Processing fees
Charged as a percentage of total home loan amount and varies from 0.25 to 1%, is the most common and prominent fees talked about when applying for home loan.
This non-refundable (pay irrespective of whether your loan gets sanctioned or not) fees has to be paid at the time of application.
Bank takes it to pay for the services, that it uses, to verify your documents.
Sometimes, banks do charge a flat processing fees for loans under 20 lakhs and another fixed amount above 20 lakhs of amount.
It may also happen that you apply for a loan of INR 21,00,000 and pay a processing fees of INR 5250 @ of 0.25% and after all the processing, the final loan approved amount is INR 19,00,000.
In this case, the bank is supposed to return the excess amount that you had paid earlier i.e. INR 500 (5250-4750).
Home Loan Legal adviser fees
Fees to get the property’s papers verified and scrutinized by a legal advisory or a lawyer.
A lawyer will check the past records to verify the title (ownership chain) of the property, which will form the basis of bank’s decision.
This fees is also non-refundable and needs to be paid with the loan application itself.
If the property you are buying is part of a project that is already pre-approved by the bank, this fees is generally low i.e. approximately INR 1,000.
The reason: Bank would have already verified the project’s document at project level.
If the property is an individual one, who’s records are already not available with the bank, then you may need to shell out approximately INR 3,000 for full verification.
GST tax on all bank fees
GST (earlier Service tax) is another amount that’s charged by banks on the amount that you pay them as fees. All fees are topped up by service tax which currently is 18%.
Stamp paper cost
This is a nominal expense of about INR 300 to buy legal stamp papers and write down legal home loan agreement between you and bank. Bank will ask you to buy these papers as they do NOT include this amount in processing fees.
This expense need to be made ONLY when your loan has been sanctioned and approved by bank.
Cost of Home insurance premium
Insuring your home is a good option but not mandatory if you DON’T take a home loan. But if you do, it is mandatory.
This cost needs to be borne by you, which falls in the range of approximately 0.1-0.2% of home value (INR 8,ooo for a property worth 40 lakhs).
The insurance amount is required to be paid upfront after the loan approval and first disbursement by bank. The home has to be insured against any natural calamity and other threats which can potentially destroy your property.
Cost of Home LOAN insurance premium
Home loan insurance is different than home insurance in the sense that the first one insures you against the home loan liability and home insurance insures your property.
Home loan insurance can also act as your guarantor in case your credit report is NOT good and bank wants you to provide a guarantee to support your home loan.
This is a big expense if you opt-in for it. You may need to shell out approximately INR 65,000 upfront towards home loan insurance premium for a loan of about 20 lakhs for a tenure of 25 years.
The premium amount varies according to your loan tenure i.e. less premium for less tenure and vice-versa.
Home Loan Costing Example
Let us consider an example and then find out the approximate cost of taking a home loan:
|Property Cost||40 Lakhs|
|Home loan||20 Lakhs, 25 years|
|Home Loan Insurance Taken||YES|
|Project already approved by Bank||YES|
|Expense||Amount (Rs.) (Approx.)||Time of payment|
|Processing fees||10,000||At the time of Loan application|
|Legal advisor fees||1,000||At the time of Loan application|
|Service tax on all bank fees||1,360||At the time of Loan application|
|Stamp paper cost||300||After Loan has been santioned by bank|
|Cost of Home insurance premium||8,000||After Loan has been santioned by bank|
|Home LOAN insurance premium||65,000||After Loan has been santioned by bank|
|Total Cost Of Taking Home Loan||85,660|
So, you may need to shell out EXTRA 85,000 upfront to get a finance of 20 lakhs and it is a huge sum for a middle class family seeking a home loan.
The costs mentioned above are generally not clearly communicated when you are searching for a home loan. You will only get to hear about the processing fees most of the time.
The home loan insurance cost is a huge cost if you plan to go for it and if your bank requires you to have a GUARANTOR. If you don’t have anybody to back you up, you will have no other option but to buy this insurance.
The cost for home loan insurance which i have considered here is for a loan of 25 years. If it is about 7 years, the premium amount would come down to INR 20,000 from INR 65,000. So, you can reduce your tenure to save some money here.
The aim of this article was to throw light on various expenses which you HAVE to make even though you may have not incurred them if you had not taken a home loan. I hope it helps you in planning before staring your home loan process.