To evaluate the impact that GST will have on home loans, it is important to understand the components that will be affected under the regime. Interest payment is the main cost of taking a home loan. This cost will not change as there is no service tax or GST imposed on it. Likewise, any stamp duty charged with regard to documentation of the home loan will not change as stamp duty is not subsumed under the GST.
There are, however, various other charges levied by lenders on home loans. The first of these is the processing fee that has to be paid at the time of taking the loan. Under the GST, this has increased to 18% as against the earlier 15%. This cost is a one-time cost and the overall impact of this on the home loan will be relatively insignificant. Other charges like advocate fees, valuation charges etc. charged by a bank in connection with home loan have gone up proportionately.
A prepayment charge will have to be paid in case the applicant decides to prepay the home loan before the completion of the tenure or if the loan is shifted to another lender. This is generally a practice if the loan is taken under a fixed interest rate. No prepayment can be charged by a bank under a floating rate home loan scheme. However, housing finance companies can charge a prepayment if the loan is shifted to another lender under floating interest rate. If the payment of home loan is made through own funds, no prepayment charges can be levied.
The lenders can also charge for an EMI default, either due to return of the cheque or ECS return, on which the GST rates have gone up. Thus, practically on all the charges that are recovered by the lenders the rates will go up by 3% under GST.