Are you planning to opt for housing finance? Well, then, you must learn about the home loan processing fee. Know that your lending institution charges this as a one-time fee for facilitating your loan application.
Certain lending institutions and NBFCs also term this an administrative fee, which they don't deduct from your EMIs. This means you must pay the home loan processing fee upfront and out of your pocket.
What is Home Loan Processing Fee?
A loan processing fee is a standard feature on most loans, and housing finance is no different. You typically pay a home loan processing fee to your lending institution or NBFC to facilitate your borrowing process. This includes various administrative tasks such as:
- Paperwork verification
- Site inspection
- Legal documentation
And other such operations.
Typically, most lending institutions charge this fee one time, but they may split it into two parts. You may pay the first half of the fee at the time of application, and the final instalment, if your loan is approved. Other institutions may levy the loan processing fee only once your application is approved.
Therefore, it is prudent to ask your lending institution about the loan processing fee payment plan in advance.
What is the Processing Fee for Loan for Homes?
Your processing fee depends on your lending institution. However, a general rule of thumb with this fee is that it depends on the mortgage charges for a home loan. Simply speaking, your processing fee is a percentage of your total housing loan.
This percentage figure can change with different lenders, but usually, it goes up to 1% of the total loan amount. In a few cases, you may find a new lender willing to charge zero processing fee for a home loan in a bid to acquire customers quickly.
Since the mortgage charges for a home loan have a significant role to play in processing fees, choose this number wisely.
What Other Charges Can I Expect on Home Loans?
In addition to the processing fee, a lending institution may levy the following home loan charges:
Default Penalty
Timely repaying your home loan EMIs has a positive impact on your CIBIL score. This makes it easier for you to get more loans in the future. On the other hand, defaulting or delaying your loan repayments will lead to a penalty. Depending on your lending institution, this number can go up to 2% of the total amount borrowed. Therefore, be sure to check your lender’s default penalty policy.
To easily avoid this home loan charge, provide standing instructions to your primary account, which will always carry ample funds.
Prepayment Charges
Borrowers may want to foreclose their home loan before the tenure is up. Or, they may pay off a big chunk of their EMI earlier than is stipulated in their loan contract. This is called loan prepayment, for which a lender may charge a fee.
Therefore, check the prepayment charges mentioned in your contract before signing above the dotted line. You may also encounter certain lending institutions that don't have a prepayment penalty.
Certain lenders term this fee pre-closure or foreclosure charges. Try finding a loan deal where you can avoid this home loan charge.
Insurance Against Property
This is an optional processing charge for a home loan, as not all buyers want to insure their property. The ones who do can request their lending institutions to insure their property. For this, the lending institution deducts the required amount along with the EMI.
Conversion Fee
Another optional processing charge for a home loan is the conversion fee. Suppose home loan interest rates in the market have come down. Naturally, you would want to avail those rates. You can do this by transferring your existing loan to the same lending institution. For this, your lender will levy a conversion fee, depending on the difference between the old and new interest rates.
You can also switch lenders if you find a lower interest rate elsewhere. In that case, you will escape the conversion fee altogether. However, bear in mind the new lender may charge you the processing fee of the home loan.
The Bottom Line
If you’re looking for a home loan, your lender choice becomes a crucial part of the mix. Your selection must not only be based on the lowest possible interest rates. You must also coincide low ROIs with tenure choices, processing fees of home loans, other charges and penalties, eligibility criteria and processing time.
To get the best out of a home loan deal, turn to Tata Capital. We offer competitive interest rates at negotiable tenures and speedy processing in exchange for minimal paperwork. Head over to our website to learn our home loan fees and charges and other details.
Check out Tata Capital Home Loans to know more!
22 November 2022
5 mins read
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