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Everything You Need To Know About Processing Fees For Home Loan

Everything You Need To Know About Processing Fees For Home Loan

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. 

Current Home Loan Processing Fees by Bank 

Home loan processing fees in 2025 vary by lender. Currently, home loan bank processing charges levied by major lenders typically range from 0.25% to 1% of the loan amount. These amounts are also usually capped at Rs. 10,000 to Rs. 50,000. Some financial institutions use a flat-fee structure, while others charge a percentage of the sanctioned amount. 

These fees typically cover administrative checks, credit appraisal, legal verification, and technical valuation. To secure the best offer, remember to check with different financial institutions. Conduct online research to identify the best home loan fee comparison and current loan processing fees. 

How to Negotiate or Reduce Home Loan Processing Fees

While they are usually fixed and unavoidable, there are steps one can take to reduce home loan fees. 

Let’s take a look at some tips to save on loan fees:

1. High credit score: A higher CIBIL score gives borrowers a stronger chance to negotiate loan processing charges. 

2. Applying during festive periods: Many lenders may offer discounts of up to 50% lower on home loan processing fees. 

3. Apply to known financial institutions: It’s also smart to approach financial institutions where you already have an account or sizable deposits, since existing customers typically receive preferential treatment. 

State-wise Stamp Duty & Registration Charges Impacting Total Costs

Stamp duty varies by state, as do registration charges on home loans.  Depending on the state, these amounts can materially increase your home loan’s total cost. State-wise loan fees generally range from 4% to 8% of the total property value, and registration charges sometimes add around 1%. 

Additionally, some states may offer lower rates for women buyers or affordable housing segments. It’s important to note that most lenders do not finance these charges, so buyers must pay them out of pocket. 

Processing Fee Waiver Offers from Top Banks

In many circumstances, financial institutions may roll out home loan fee waivers. Top banks offer loan waivers or bank processing fee offers in order to attract new borrowers. This is especially true during festive seasons or special campaigns. 

These waived loan charges could include zero processing fees or capped charges for specific borrower categories, such as first-time buyers or women applicants. It’s important to remember that while such waivers reduce upfront costs, borrowers should assess the complete loan package and long-term costs. A fee waiver is beneficial only if the overall cost of borrowing remains competitive.

Impact of GST on Home Loan Processing Fees

Lenders must charge GST on home loan fees. The current home loan processing GST is 18%. While the loan fee tax impact won’t affect the principal loan amount, it will increase your upfront costs. 

For instance, a processing fee of ₹10,000 attracts an additional ₹1,800 as GST. Since the GST effect on processing charges is mandatory and non-negotiable, you must factor it into your initial cash outflow when estimating the total cost of availing a home loan.

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FAQs

Is the home loan processing fee refundable if my application is rejected?

Home loan processing fees are usually non-refundable. Even if the application is rejected, they will cover verification and administrative costs. Home loan processing fee refunds may apply under specific, documented promotional offers.

Can I negotiate the processing fee with my bank?

 

Usually, processing charges for home loans are non-negotiable. However, sometimes, they may be negotiable if you have a strong credit score, an existing relationship with the lender, or competing offers. 

How does the processing fee differ for salaried vs self-employed applicants?

 

Mortgage loan processing fees may vary based on the borrower's profile. For example, salaried applicants often pay lower rates because their income is stable, while self-employed borrowers face higher fees. 

Are home loan processing fees taxable under income tax?

 

Under Section 80C, home loan processing fees, principal repayment, and stamp duty are deductible up to ₹1.5 lakh. This is subject to a five-year holding period.

What is the average processing fee percentage across Indian banks?

 

In India, what is the processing fee for home loans varies by lender. This amount usually ranges from 0.25% to 3%, depending on loan type and customer profile.

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