Home Loan Processing Fee: Its Importance to the Lender and Borrower

A housing loan is a long-term financial goal for a homebuyer, making it crucial to address all additional costs before they opt for a Home Loan. A Home Loan processing fee is one such cost that one needs to pay during the credit application process. 

It varies from lender to lender and generally ranges from 0.35% to 7% (+ GST) of the borrowed principal. This fee is there to compensate the lender for various unavoidable expenses such as income verification, property appraisal, underwriting, etc. 

Here is what you need to know about Home Loan processing fees 

Before a borrower accepts a loan offer, lenders should inform them about the processing fees. A borrower must remember that this is not a fixed rate. A lender can revise this rate depending on the market situation. Certain financial institutions may charge a fixed amount as a processing fee, while other lenders can levy this fee as a percentage of the approved loans. 

Borrowers should opt for personalised alerts on their preferred lenders' websites so that they get notifications when a lender waives loan processing fees. To make a more informed decision they can compare various loan products based on interest rates, associated fees and documents required for Home Loans. 

Benefits of Home Loan processing fee 

A borrower is in for several advantages due to the Home Loan processing fees. Here are some of them: 

• Transparency 

If a lender is clear and upfront about the processing fee it is easier for the borrower to factor in the cost and evaluate the affordability of a Home Loan more accurately. This transparency goes well with the financial disclosure principles which contributes to a transparent fee structure and helps a borrower make informed decisions. 

• Ensured borrower commitment 

This helps the borrower to identify the financial stakes clearly and get serious when approaching the loan application process. Therefore, a processing fee ensures that a borrower is committed and consequently, it will reduce the number of speculative or frivolous applications. 

• Sustain lender operations 

The processing fee is an essential revenue stream for lenders. It allows them to maintain the necessary infrastructure an organisation needs to process loans efficiently and continue operating. This also enables a lender to offer competitive interest rates and a wider range of products to clients. 

Other types of Home Loan fees 

Apart from the processing fee, there are various other charges concerning a Home Loan. 

1. Late payment charges 

A lender is liable to levy a late payment fee in case a borrower delays an EMI payment. As a penalty, a borrower might have to pay about 24% of the overdue amount per year in addition to the applicable interest rate. Applicants can use a Home Loan EMI calculator to plan and make better decisions. 

2. Conversion fee 

When borrowers transfer an existing Home Loan to a different interest rate within the same financial institution, they may have to pay conversion fees. This generally happens when borrowers want to shift to a lower interest rate. 

Apart from these, there are EMI bounce charges, secure fees, etc. 

It is worth mentioning that many financial institutions offer their long-standing customers pre-approved loans for a number of financial products including Home Loans and loans against property. Borrowers can find out if they are eligible for the offer by visiting the respective websites of the lender and filling out specific forms. A pre-approved offer streamlines the process and gives a borrower quicker access to the loan amount. 

Before borrowers opt for a Home Loan it is essential to understand the importance of processing fees. A borrower can confidently navigate the financial landscape with a better understanding of the fees, their necessity and benefits.