Planning a Home Loan? Watch Out for These 7 Charges That Can Inflate Your Costs—and How to Save Money

As more people plan to buy their own homes in 2026, home loans are set to remain the preferred financing option. However, borrowers often focus only on interest rates and overlook several hidden charges that can significantly increase the overall cost of a home loan. From processing fees to insurance add-ons, these charges can quietly drain your finances if not understood in advance.

According to experts, being aware of these costs and negotiating wherever possible can help borrowers save a substantial amount over the loan tenure.

1. Processing Fees

Every home loan begins with a processing fee, which covers administrative, legal, and documentation-related expenses. Banks charge this fee for evaluating applications, verifying documents, and conducting credit checks. Typically, processing fees range between ₹5,000 and ₹15,000.

Experts advise borrowers to negotiate this charge at the time of loan approval, as many banks are willing to offer discounts or even waive it during festive offers or special campaigns.

2. Prepayment and Foreclosure Penalties

Prepayment and foreclosure clauses come into play when borrowers want to repay a part of the loan or close it entirely before the tenure ends. As per RBI rules, floating-rate home loans do not attract any prepayment penalty. However, fixed-rate and hybrid home loans may carry a penalty of up to 4% of the outstanding principal.

Atul Monga, CEO and Co-founder of Basic Home Loan, explains that banks usually reduce the loan tenure rather than EMI amounts when partial prepayments are made. This helps borrowers save a significant amount on interest over the long term.

3. Interest Rate Conversion Charges

Market conditions change, and borrowers may want to switch between fixed and floating interest rates during the loan tenure. Banks allow such conversions but charge a fee for it.

According to Monga, conversion charges generally range from 0.25% to 0.5% of the outstanding loan amount. For example, on a balance of ₹40 lakh, this could mean an additional cost of ₹10,000 to ₹20,000. Borrowers should carefully calculate whether the interest savings justify the conversion fee before opting for this facility.

4. Balance Transfer Costs

Home loan balance transfers—shifting a loan from one bank to another for a lower interest rate—can appear attractive. However, they often come with fresh costs such as processing fees, legal charges, property valuation fees, and MODT charges.

Additionally, if the existing loan is on a fixed or hybrid rate, foreclosure penalties may apply. BankBazaar CEO Adhil Shetty advises that balance transfers make sense only when the interest rate difference is substantial enough to offset these additional costs.

5. Late Payment Penalties

Delayed EMI payments can result in hefty penalties, often up to 3% or more of the overdue amount. Delays may occur due to salary credit issues or unforeseen emergencies.

Most banks offer a grace period of 5 to 10 days after the due date before levying penalties. To avoid such charges, borrowers should ensure sufficient balance in their bank accounts to prevent EMI bounces.

6. Forced Insurance Add-ons

Insurance is another area where borrowers may unknowingly incur extra costs. Banks usually insist on two types of insurance:

• Property insurance, which protects the mortgaged property against risks such as fire and natural disasters, and
• Loan protection insurance, a term insurance policy that covers the outstanding loan amount in case of the borrower’s death.

While property insurance is generally mandatory, loan protection insurance is optional. Problems arise when banks bundle single-premium insurance into the loan without clear consent. Borrowers are free to choose their own insurer or purchase a separate term plan, as long as it meets the bank’s requirements.

7. CERSAI Charges

CERSAI (Central Registry of Securitisation Asset Reconstruction and Security Interest of India) charges often confuse first-time home loan borrowers. This fee covers the registration of the mortgage in a central database to prevent multiple loans against the same property.

The charge is usually up to ₹100 (plus GST) and is considered an essential and non-negotiable cost.

Bottom Line
While home loans make property ownership more accessible, hidden charges can quietly raise the total cost. Borrowers should read loan agreements carefully, ask questions, negotiate fees wherever possible, and compare offers across lenders. A little diligence at the start can lead to significant savings over the life of the loan.