Home Loan: Home loan borrowers, take note... these 7 charges can empty your pockets, learn how to save money..
Many people are planning to buy their own homes in 2026. Most of them will buy houses by taking out home loans. If you are also planning to buy a house with a home loan, then it is important to know a few things. Banks levy various charges during the loan process. After taking out a loan, many people also transfer their loans due to lower interest rates. In such cases, they have to pay several types of charges. This increases the overall cost of repaying the loan. Some of these charges can be reduced to save money.
According to the Economic Times, BankBazaar CEO Adil Shetty explains that mandatory add-ons such as processing fees, penalties for delayed EMI payments, rate conversion or reset charges, and bundled insurance can significantly increase the total cost of your loan. Special attention should be paid to prepayment and foreclosure clauses, especially if any fees are associated with them.
These 7 charges can increase your expenses:
1. Processing Charges
Every home loan starts with processing fees, legal, and administrative expenses. These are the fees that banks charge for evaluating your application, verifying documents, and conducting credit checks. These fees can range from Rs. 5000 to Rs. 15000. According to experts, you should negotiate with the bank about these charges when taking out a home loan. Many banks reduce these charges.
2. Prepayment Penalty
Prepayment and foreclosure clauses come into play when you want to repay your loan partially or fully early. According to RBI rules, no prepayment penalty can be levied on floating-rate home loans. However, fixed interest rate and hybrid interest rate home loans usually attract a penalty of up to 4% of the outstanding principal amount. According to Atul Monga, CEO and Co-founder of Basic Home Loan, when a borrower makes a partial prepayment, banks usually reduce the loan tenure and keep the EMI the same. This results in significant interest savings in the long run.
3. Charges for changing interest rates
Market conditions keep changing. You might want to switch from a floating to a fixed rate or from a fixed to a floating rate during your loan tenure. Banks offer this conversion facility, but it comes at a cost. According to Monga, the conversion fee is typically 0.25% to 0.5% of your outstanding loan amount. On an outstanding amount of ₹40 lakh, this could range from ₹10,000 to ₹20,000. Before using the conversion option, calculate whether the interest rate difference justifies the conversion fee. Sometimes, sticking with your existing rate is more economical.
4. Cost of balance transfer
A few years into your home loan, you might receive offers for balance transfers (transferring the loan from one bank to another) at lower interest rates. However, just like changing interest rates, immediately jumping at such an opportunity may not always be a good option. Besides the lower interest rate, the new lender may also have the same initial charges, such as processing fees, legal and valuation fees, MODT charges, etc. If your old loan was on a hybrid or fixed rate, there might also be a foreclosure penalty. Shetty says that a balance transfer is only beneficial if the interest rate difference is significant.
5. Charges for late payments
Sometimes, home loan EMIs can be delayed. This can happen due to various reasons, such as delayed salary, a medical emergency, etc. In such cases, banks levy heavy charges for late payments. This can be up to 3 percent or even more of the outstanding EMI amount. Monga explains that most banks provide an additional grace period of 5 to 10 days after the due date before levying a penalty. It's best to maintain sufficient funds in your account to avoid EMI bounces.
6. Forced Insurance Sales
Insurance is another sector where borrowers often unknowingly lose money. Two types of insurance are offered. The first is property insurance. During a home loan, your property is the collateral held by the bank. The bank needs to ensure that it is protected against fire, natural disasters, and other damages. The second type of insurance is loan protection. This is a term insurance policy that pays off the outstanding loan amount in case of the borrower's death.
Adil Shetty explains that property insurance is usually mandatory. Loan protection insurance is optional. Disputes arise when banks bundle single-premium insurance into the loan without explicit consent. Borrowers are free to choose their own insurer or opt for a separate term plan, provided they meet the bank's requirements.
7. CERSAI Charges
CERSAI (Central Registry of Securitisation, Asset Reconstruction and Security Interest of India) is a fee that often confuses first-time home loan borrowers. Shetty explains that CERSAI charges cover the registration of the mortgage in a central database to prevent multiple loans being taken out against the same property. These charges can be up to ₹100 (plus GST). Experts consider these charges important.
Disclaimer: This content has been sourced and edited from Navbharat Times. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
