Everything You Need to Know About Processing Fees on Home Loan

When you’re buying a home, there are a lot of costs to consider. One of the most important is the processing fee. This is the fee that your lender charges for performing certain services related to your loan. It’s important to understand what this fee covers and how much it will add to your overall mortgage payment. In this blog post, we will discuss everything you need to know about processing fees on home loans!

Let’s get started.

What is Home Loan Processing Fee?

A home loan processing fee is a charge levied by banks or NBFCs for processing your home loan application. The fee is generally a certain percentage of the total loan amount you have applied for. It is generally 0.50% of the loan amount. The processing fee varies as per the different lenders. In some cases, this fee may be even higher, up to 3% of the total loan amount.

Processing fees are generally not refundable, even if your home loan application is rejected. So, before applying for a home loan, you must consider all aspects to avoid any last-minute surprises or disappointments.

How Much is the Processing Fee for Housing Loans?

A portion of the entire loan amount is charged as the processing fee for housing loans. The amount owed to the lending firm must be understood by those who choose to apply for a home loan. The processing charge for a home loan can be nearly 0.5% of the loan amount, though the exact amount varies depending on the financial institution. 

Additionally, some lenders provide home loans with no home loan processing fees. Some also have exclusive deals for salaried clients.

List of Additional Fees for a Home Loan

Whenever a bank provides you with a home loan, they will also charge you a processing fee. Other than the processing fee, several other fees are associated with availing of a home loan which include:

1. Prepayment Charges

If you choose to foreclose your home loan before the tenure, most banks will charge you a percentage of the outstanding principal amount as prepayment charges. These charges can range from nil to around 5%. These charges include administrative, legal and other miscellaneous expenses that the bank incurs while processing your home loan application.

2. Documentation Charges

Banks charge a one-time fee for processing your home loan application. The charges include the cost of collecting and verifying documents, as well as the cost of stamp duty. Documentation charges can range from Rs 500 to Rs 2000.

3. Insurance Against Property

Banks will also ask you to insure your property against any natural calamities such as floods, earthquakes, etc. The premium for this insurance generally ranges from 0.30% to 0.50% of the total loan amount per year.

4. Delayed Payment

If you delay your EMI payments, the bank will charge you a certain amount of interest on the outstanding principal amount. This interest rate is generally much higher than the rate at which you had taken the loan.

The Bottom Line

A processing fee is a necessary part of taking out a home loan. It can vary from lender to lender, so it’s important to compare different offers before deciding on a loan. This is one of many factors you’ll need to consider when taking out a home loan, but they’re essential. We hope this guide has helped you better understand processing fees and how they work.