SBI's home loan processing fee is back. What does it mean for borrowers

Bavadharini K S | Updated on October 15, 2019 Published on October 15, 2019

SBI withdrew the processing fee waiver offer effective today, implying borrowers will have to shell out a tidy amount.   -  The Hindu

Though processing fee may appear small, it is nonetheless a tidy sum that cannot be ignored.

BL Research Bureau

SBI recently withdrew the waiver of processing fee on home loans, which was a part of its festive offer up until now. While SBI and other banks have been wooing borrowers with attractive lending rates-- by launching repo-linked home loans this festive season-- the sudden withdrawal of the wavier of processing fee could play spoilsport to your festivities.

According to reports and an internal circular, SBI had waived off processing fee on home loans sourced up to December 31, 2019, as part of its festive offer. But effective October 15, this relief has been withdrawn, implying that borrowers will have to shell out a tidy amount as the processing fee at the time of taking a home loan.

So how much of a hole does it burn in your pocket? We look at processing fee charged by various banks to find out.

Processing fee

Home loan processing fee is a onetime fee that is levied by a bank for processing your loan. It is charged to cover the cost of completion of loan-related formalities, including expenses incurred for documentation and credit appraisal and verification. Many a time, banks waive off this fee to lure borrowers. Usually, banks go all the way to offer attractive deals during the festive season, which include cheaper lending rates, zero processing fee, cashback offers, higher than usual eligibility amount etc.

While processing fee may appear small ---when compared to the home loan amount -- it is nonetheless a tidy sum that cannot be ignored.

For instance, according to the SBI’s website, the bank charges 0.35 per cent of the loan amount as a processing fee. The fee can range from a minimum ₹2,000 to a maximum of ₹10,000 (excluding tax). Further, expenses for a valuation report, CERSAI registration are recovered separately from the borrower. This would mean that may have to shell out a notable amount for taking the home loan, aside from processing fee.

Other players such as HDFC charge 0.5 per cent of the loan amount (maximum of ₹10,000 plus taxes) as processing fee.

In some cases, the processing fee with banks and other financial institutions can go as high as 2 per cent or more---without any cap on the maximum fee. For instance, ICICI Bank charges 0.25 per cent of the loan amount plus applicable taxes. This means that you may have to pay a higher processing fee for a high-value home loan/purchase. Kotak Bank charges a maximum of 2 per cent of the loan amount as processing fee. This implies an outgo of ₹1.2 lakh for a ₹60 lakh home loan.

In most of the cases, the processing fee is non-refundable, even if the desired loan amount doesn’t get sanctioned. Therefore, it is better to make a comparison between financial institutions and their processing fee policies before you apply for loan. Though lending rates are paramount while making a decision, processing fee could also be a significant expense that one has to consider.

Even if lending institutions provide a limited period offer of zero processing fees, the advantage may be negated with other charges such as legal fee or documentation charges.

Other charges

There are other charges that lenders charge for home loans such as document related fees, legal fees, administration fees and other statutory levies. Further, financial institutions may charge some additional fees, even after you take a loan -- for rescheduling of the loan payment, change in EMI date etc.,

Thus, aside from lending rates and loan tenure, keep track of other charges too, while taking a loan.

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Published on October 15, 2019
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