Introduction
For most homebuyers, a loan from the bank feels like a trusted lifeline. But the reality is different. Banks are not in the business of helping you own a home—they are in the business of making money. From hefty processing fees and biased valuations to unfair interest rate policies and forced insurance, many institutions quietly take advantage of loopholes that cost consumers lakhs over the loan tenure.
As a real estate consultant, I have seen clients caught off-guard by charges and policies they were never warned about. Here’s the truth banks don’t want you to know.
1. The Processing Fee Trap
Banks advertise “low processing fees” but often:
- Charge 1–2% of the loan amount, non-refundable—even if your loan isn’t sanctioned.
- Add “technical valuation charges” or “legal scrutiny fees,” inflated under different heads.
- Push “optional” products bundled with the loan, indirectly increasing your cost.
👉 A ₹1 crore loan can easily see ₹1.5–2 lakh upfront deductions before disbursal, with no transparency.
2. Interest Rate Bias and Repo Rate Delays
The RBI reduces repo rates to make credit cheaper, but many banks do not pass on the benefit to existing customers.
- New borrowers are offered lower rates as a marketing tool.
- Existing borrowers are stuck at higher rates unless they request a “conversion” and pay a fee.
- Some banks even delay downward revisions for months, while upward revisions happen almost instantly.
👉 The difference of even 0.5% on a 20-year loan of ₹75 lakh means paying ₹5–7 lakh extra over tenure.
3. Valuation Loopholes and Approval Bias
Home loan approval isn’t always based on repayment capacity. Instead, it’s influenced by:
- Biased project valuations – Banks under-value properties they don’t have tie-ups with, forcing buyers to pay higher margins.
- Builder–bank nexus – Loans for certain projects are “fast-tracked,” while independent resale properties face stricter scrutiny.
- Artificially low valuations – Used to reduce loan eligibility, pushing the buyer to arrange extra down payment.
This often discourages buyers from negotiating independently and funnels business towards developers with whom banks have “relationships.”
4. Mandatory Insurance: The Hidden High-Premium Trap
One of the most overlooked ways banks extract money is through loan-linked insurance.
- Not Mandatory by Law: Neither RBI nor IRDAI mandates that borrowers must purchase insurance with a home loan. Yet, many banks mislead customers into believing it is compulsory.
- High-Cost Policies: Loan protection plans pushed by banks often carry premiums 3–4x higher than a simple term insurance policy that provides the same coverage. Many are structured as one-time lump-sum premiums added to the loan principal—meaning you not only pay the premium but also interest on it over the loan tenure.
- Bank Commissions: These products are sold aggressively because banks earn commissions from insurers. Borrowers are rarely informed that they are free to buy equivalent coverage independently at a much lower cost.
👉 Example: A ₹1 crore term insurance plan may cost ₹7,000 per year, while a bundled loan-linked policy can cost ₹50,000+ per year—a massive difference over the loan term.
Borrower’s Rights:
- You can decline the bank’s insurance and purchase your own.
- If the bank insists, ask for written proof of mandatory requirement (which they cannot provide).
- In case of refusal, escalate to the branch manager, the Banking Ombudsman, or consider switching lenders.
5. Hidden Charges Beyond EMIs
Apart from processing fees, interest, and insurance, banks add layers of costs:
- Prepayment charges (sometimes in disguised forms on fixed-rate loans).
- Statement fees, admin fees, documentation fees billed without disclosure.
- Insurance loading where premiums are added into EMIs, inflating long-term costs.
👉 Over a 15–20 year loan, these “minor” charges snowball into several lakhs.
6. How Consumers Can Protect Themselves
- Compare offers across multiple banks, not just the one suggested by the builder.
- Check spread over repo rate—this determines how quickly your rate changes with RBI updates.
- Negotiate processing fees—many banks reduce or waive them if pushed.
- Review valuation reports—demand transparency and get an independent opinion.
- Buy your own insurance—opt for a transparent term policy rather than an overpriced loan-linked product.
- Ask for a full charge sheet before signing—don’t let bundled costs sneak in.
Bottom Line (Editor’s Take)
The home loan system in India is tilted in favour of banks, not consumers. While RBI and IRDAI have frameworks for transparency, loopholes remain. Buyers need to be aware, ask the right questions, and challenge unfair charges. Remember—every half-percent, every hidden fee, every overpriced insurance premium is money out of your pocket, not the bank’s.
About the Author
Arosh John is a MahaRERA-registered realtor and founder of John Real Estate, an ISO 9001:2015 certified consultancy based in Thane. With over a decade of experience advising buyers, sellers, NRIs, and investors, Arosh has built a reputation for transparent, fact-based guidance in real estate.
He is also the founder of Thane Real Estate News (TREN), a platform dedicated to delivering reliable property insights, project reviews, and market updates. Arosh’s mission is simple: to empower homebuyers and investors with the knowledge they need to make smarter, safer, and more profitable decisions.
Disclaimer
This article is for informational purposes only and reflects the author’s professional views and experiences as a real estate consultant. Readers are advised to independently verify loan terms with respective banks and consult financial advisors before making decisions.
