Summary of this article
Home loan costs extend beyond the interest rate.
Processing, legal and insurance charges raise borrowing costs.
Longer tenures lower EMIs but increase total interest.
While browsing for home loans, many homebuyers think that securing the lowest interest rate gets them the best deal. However, borrowers often forget that the interest rate is only one part of the total borrowing cost.
Other than interest payments, homebuyers may also incur processing fees, legal and technical verification charges, insurance premiums, and other loan-related expenses, often disclosed in the fine print.
For example, upon taking a Rs 50 lakh home loan, the borrower might also have to pay a processing fee, property valuation charges, and insurance costs on top of the equated monthly instalments (EMIs). Such costs can raise the total amount spent on the loan.
Processing Fees
Processing is one of the first costs a borrower might encounter while taking a home loan. Lenders typically levy this fee to assess and proceed with the loan application.
Not all lenders in India charge processing fees. However, depending on the lender and the loan amount, this fee can range from 0.5 per cent to 1 per cent of the total loan amount, plus applicable taxes.
While this cost may seem negligible and small compared to the overall loan amount, it is an upfront expense that borrowers need to account for before finalising the loan.
Legal And Technical Charges
Banks usually verify that the ownership of the property is valid and that the valuation is in accordance with their lending requirements before approving the loan. To carry out such checks, banks often involve technical valuation and legal scrutiny.
Even though some lenders waive such charges under specific schemes, others can pass them on to the borrower. Charges for document verification and property valuation may be billed separately, even before the loan disbursal.
Home Loan Insurance Premiums
Lenders often offer home loan insurance along with the loan itself. While these products provide financial protection, borrowers should always check the premium amount and how it should be paid.
In some cases, the premium is added to the loan amount instead of being paid separately, which means that borrowers may also need to pay interest on the insurance cost throughout the loan tenure, thereby increasing the total repayment cost.
Longer Loan Tenure Can Increase Cost
Loans with lower EMIs may seem favourable on the surface. But lenders often recover lower EMIs by extending the repayment period. For instance, a 30-year loan may have a lower EMI outgo than a 20-year loan. But the borrower may end up paying significantly more interest over the total span of the loan.
A lower EMI doesn't always translate to the least expensive option.
