Hidden Costs In Home Loans: Why Borrowers Must Look Beyond Interest Rates In 2026

As more Indians plan to buy homes in 2026 or transfer their existing loans, many continue to focus almost entirely on interest rates. However, a detailed analysis by The Economic Times has warned that several Home loan charges hidden inside loan agreements can quietly push the total repayment burden up by lakhs of rupees. 

The ET report explains how fees such as processing charges, legal costs, conversion fees and penalties often escape attention at the time of signing

BankBazaar CEO Adhil Shetty has cautioned borrowers to “look beyond the headline rate”, as the final cost of a loan is determined not just by interest but by the full fee structure.

Where The Extra Cost Actually Comes From?

Every home loan begins with upfront expenses. According to The Economic Times, banks typically charge a processing fee ranging from 0.25% to 1% of the loan amount, often with a cap

This is not just theoretical. For instance, SBI currently charges a processing fee of up to 0.35% of the loan amount, as per data published by LoansJagat, showing how even the country’s largest lender adds a meaningful upfront cost to the borrowing process

In addition, lenders recover legal and technical verification charges that usually fall between ₹5,000 and ₹15,000, as explained by Atul Monga, CEO and Co-Founder, BASIC Home Loan, in the same report.

Charges That Most Borrowers Overlook

Another major cost emerges when borrowers try to close their loan early. As explained by Times Property, RBI rules do not permit prepayment penalties on floating-rate home loans, but fixed and hybrid loans can still attract penalties of up to 4% of the outstanding principal

This means a borrower who decides to close a ₹40 lakh loan prematurely could end up paying as much as ₹1.6 lakh purely as a penalty.

Then there is the cost of switching interest rate regimes. The Economic Times notes that conversion charges usually range from 0.25% to 0.5% of the outstanding loan amount, which means on a ₹40 lakh balance, the borrower pays between ₹10,000 and ₹20,000 just to change the rate structure

How A ₹40 Lakh Loan Gets Costlier

This is precisely why Home loan charges can erase much of the benefit of a low advertised interest rate.

How The Regulatory Landscape Has Evolved?

Over the last few years, the RBI has tried to make home loans more transparent. According to Mint, the central bank has reiterated that lenders cannot levy foreclosure charges on floating-rate loans, but banks continue to recover money through processing fees, documentation costs and conversion charges

Business Standard has also pointed out that many festive or special loan offers focus heavily on EMIs while quietly embedding long-term costs in the agreement

Meanwhile, Business Today has reported that repeated rate switches and balance transfers can cumulatively add tens of thousands of rupees to a loan even when interest rates fall

What Industry Experts Are Advising?

Adhil Shetty of BankBazaar has consistently advised borrowers to examine the full cost structure instead of focusing only on interest rates. 

Atul Monga of BASIC Home Loan has also explained that when borrowers make part-prepayments, banks usually reduce the loan tenure rather than the EMI, which increases interest savings, but borrowers must explicitly ask for EMI reduction if that is their goal, as reported by The Economic Times.

Conclusion 

With interest rates expected to remain volatile in 2026, Home loan charges will play a decisive role in determining the real cost of borrowing. A careful reading of the loan agreement today can save a borrower several lakhs over the loan tenure.