Home loan processes can be intimidating in itself.Housing loan requirements are vast in terms of the documentation required, and the administrative expenses. But, there are several hidden charges that the banks don’t disclose at the time of granting a home loan.
Memorandum of Deposit of Title Deed
Memorandum of Deposit of Title Deed or MOTD is a common charge that bankers don’t tell you about. However, once you’re asked to pay for that, it seems to make logical sense that this cost would be included. This document states that the bankers have the first lien when it comes to the property for which the loan is being taken.
This affidavit has to be signed on the title deed. The stamp duty that is incurred on such a deed is charged from the customers. Some banks may charge such a stamp duty after it is charged by the state government. Other banks collect it on an accrual basis. Either way, the consumer carries this burden.
Whenever banks draft a document, it passes through several stages for approval. The template is usually created and approved by the legal department. In case the loan requires some modification, or drafting on mutually agreed terms, this has to be approved by the legal team, and the credit department.
The legal services extend to ensuring the valuation of property is made correctly, and the collateral for that covers any anticipated loss. That means, when banks create a provision for expected default, the legal team approves such valuation. Such fees of employing the legal staff are recovered from the consumer himself
Prepayment of Loan
Consumers are informed of the charge at the time of repayment of the loan. While banks accept prepayment and clearance of loan obligation, they tend to do so only after a certain period has elapsed. After that, to compensate for the loss of interest until the maturity of the loan, banks tend to charge a fee. This is usually a discounted present value of the interest lost, with a rebate.
With the increased competition, banks have started allowing partial prepayment of loans. However, rules are imposed regarding the number of times such prepayment is allowed in a year and the minimum amount that should be paid.
Late Payment Fees
These are usually incurred when the consumer misses his payment deadline. While the bank agreement specifies the due date and the total penalties for such payment, consumers tend to miss this clause. Therefore, when you actually incur this cost, this could cost the consumer a fortune in penalties. Therefore, careful scrutiny of the documents is required so that the due dates are not missed
Change in Tenure
If you’ve come into additional funds, you can always adjust your tenure so that you pay back the loan earlier. That means your EMIs will increase, but the period gets shorter. For allowing this, banks charge the consumer a fee.
It is necessary to be aware of the above charges when applying for a loan so that you are financially ready.